<PAGE>
Prospectus Supplement
(To Prospectus dated March 11, 1998)
$525,000,000
Arcadia Automobile Receivables Trust, 1998-A
<TABLE>
<C> <C> <S>
$ 55,650,000 5.628% CLASS A-1 AUTOMOBILE RECEIVABLES-BACKED NOTES
$175,195,000 5.737% CLASS A-2 AUTOMOBILE RECEIVABLES-BACKED NOTES
$141,350,000 5.900% CLASS A-3 AUTOMOBILE RECEIVABLES-BACKED NOTES
$100,305,000 6.000% CLASS A-4 AUTOMOBILE RECEIVABLES-BACKED NOTES
$ 52,500,000 6.060% CLASS A-5 AUTOMOBILE RECEIVABLES-BACKED NOTES
</TABLE>
Arcadia Receivables Finance Corp.
(SELLER)
[LOGO]
(SERVICER)
Arcadia Automobile Receivables Trust, 1998-A (the "Trust") will be formed
pursuant to a Trust Agreement, to be dated as of March 1, 1998, among Arcadia
Receivables Finance Corp. (the "Seller"), a wholly owned subsidiary of Arcadia
Financial Ltd. ("Arcadia Financial"), Financial Security Assurance Inc.
("Financial Security") and Wilmington Trust Company, as Owner Trustee. The Trust
will issue $55,650,000 aggregate principal amount of 5.628% Class A-1 Automobile
Receivables-Backed Notes (the "Class A-1 Notes"), $175,195,000 aggregate
principal amount of 5.737% Class A-2 Automobile Receivables-Backed Notes (the
"Class A-2 Notes"), $141,350,000 aggregate principal amount of 5.900% Class A-3
Automobile Receivables-Backed Notes (the "Class A-3 Notes") $100,305,000
aggregate principal amount of 6.000% Class A-4 Automobile Receivables-Backed
Notes (the "Class A-4 Notes") and $52,500,000 aggregate principal amount of
6.060% Class A-5 Automobile Receivables-Backed Notes (the "Class A-5 Notes" and,
together with the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes and
the Class A-4 Notes, the "Notes"), pursuant to an Indenture, to be dated as of
March 1, 1998 (the "Indenture"), among the Trust and Norwest Bank Minnesota,
National Association, as Indenture Trustee and Indenture Collateral Agent.
(CONTINUED ON PAGE S-2)
Full and timely payment of the Noteholders' Distributable Amount on each
Distribution Date is unconditionally and irrevocably guaranteed pursuant to a
Financial Guaranty Insurance Policy issued by
[LOGO]
For a discussion of certain factors which should be considered by prospective
purchasers of the Notes, see "Risk Factors" at page S-15 herein and at page 10
in the accompanying Prospectus.
THE NOTES REPRESENT OBLIGATIONS OF THE TRUST ONLY AND DO NOT REPRESENT
OBLIGATIONS OF OR INTERESTS IN ARCADIA FINANCIAL, THE SELLER OR ANY AFFILIATE OF
EITHER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and the
Public (1) Commissions Seller (1)(2)
<S> <C> <C> <C>
Per Class A-1 Note 100.000000% 0.140% 99.860000%
Per Class A-2 Note 100.000000% 0.170% 99.830000%
Per Class A-3 Note 99.919544% 0.220% 99.699544%
Per Class A-4 Note 99.923345% 0.270% 99.653345%
Per Class A-5 Note 99.912769% 0.330% 99.582769%
Total $524,763,590.37 1$,130,785.00 $523,632,805.37
</TABLE>
(1) Plus accrued interest, if any, from and including March 25, 1998.
(2) Before deducting estimated expenses of $725,000 payable by the Seller.
The Notes are being offered by the Underwriters when, as and if delivered to and
accepted by the Underwriters and subject to various conditions, including their
right to reject orders in whole or in part. It is expected that the Notes will
be delivered in book-entry form on or about March 25, 1998, through the
facilities of The Depository Trust Company, Cedel Bank, societe anonyme and the
Euroclear System.
J.P. Morgan & Co.
BancAmerica Robertson Stephens
Donaldson, Lufkin & Jenrette
Securities Corporation
March 11, 1998
<PAGE>
(CONTINUED FROM COVER)
The assets of the Trust will include a pool of retail installment sales
contracts and promissory notes (the "Receivables") purchased by Arcadia
Financial from motor vehicle dealers and secured by new and used automobiles and
light trucks, certain monies paid or payable thereunder after March 11, 1998
(the "Initial Cutoff Date"), an assignment of Arcadia Financial's security
interests in vehicles financed thereby, monies on deposit in a trust account
(the "Pre-Funding Account") to be established with the Indenture Trustee, and
certain other property, as more fully described herein. The aggregate principal
balance of the Receivables on the Initial Cutoff Date is expected to be
approximately $367,500,000. Additional retail installment sales contracts and
promissory notes (the "Subsequent Receivables") will be purchased by the Trust
from the Seller from time to time on or before the May 1998 Distribution Date,
from the Pre-Funded Amount (as defined herein) then on deposit in the
Pre-Funding Account. The Notes will be secured by the assets of the Trust
pursuant to the Indenture.
Interest on each class of Notes will accrue at the per annum interest rates
specified above. Interest on the Notes will be payable on the fifteenth day of
each month (or, if the fifteenth day is not a Business Day, the next following
Business Day) (each, a "Distribution Date"), commencing April 15, 1998.
Principal of the Notes will be payable on each Distribution Date to the extent
described herein, except that no principal will be paid on the Class A-2 Notes
until the Class A-1 Notes have been paid in full, no principal will be payable
on the Class A-3 Notes until the Class A-2 Notes have been paid in full, no
principal will be payable on the Class A-4 Notes until the Class A-3 Notes have
been paid in full and no principal will be payable on the Class A-5 Notes until
the Class A-4 Notes have been paid in full. It is a condition of issuance that
the Class A-1 Notes be rated A-1+ by Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc. ("S&P"), and P-1 by Moody's
Investors Service, Inc. ("Moody's" and, together with S&P, the "Rating
Agencies"), and that the Class A-2 Notes, the Class A-3 Notes, the Class A-4
Notes and the Class A-5 Notes be rated AAA by S&P and Aaa by Moody's. The rating
by S&P of the Class A-1 Notes will be issued without regard to the benefit
afforded by a financial guaranty insurance policy (the "Note Policy") by
Financial Security. The rating by S&P of the Class A-2 Notes, the Class A-3
Notes, the Class A-4 Notes and the Class A-5 Notes will be based on the issuance
of the Note Policy by Financial Security. The rating by Moody's of the Class A-1
Notes will be substantially based on the issuance of the Note Policy by
Financial Security, and the rating by Moody's of the Class A-2 Notes, the Class
A-3 Notes, the Class A-4 Notes and the Class A-5 Notes will be based on the
issuance of the Note Policy by Financial Security.
The final scheduled distribution date for the Class A-1 Notes will be the
March 1999 Distribution Date (the "Class A-1 Final Scheduled Distribution
Date"), the final scheduled distribution date for the Class A-2 Notes will be
the July 2001 Distribution Date (the "Class A-2 Final Scheduled Distribution
Date"), the final scheduled distribution date for the Class A-3 Notes will be
the November 2002 Distribution Date (the "Class A-3 Final Scheduled Distribution
Date"), the final scheduled distribution date for the Class A-4 Notes will be
the November 2003 Distribution Date (the "Class A-4 Final Scheduled Distribution
Date") and the final scheduled distribution date for the Class A-5 Notes will be
the March 2006 Distribution Date (the "Class A-5 Distribution Date" or the
"Final Scheduled Distribution Date"). However, payment in full of the Notes
could occur earlier than such dates as described herein. In addition, the Class
A-5 Notes, to the extent still outstanding, may be subject to redemption in
whole, but not in part, on any Distribution Date on which the Seller or the
Servicer exercises its option to purchase the Receivables. The Seller or the
Servicer may purchase the Receivables when the aggregate principal balance of
the Receivables has declined to 10% or less of the Original Pool Balance (as
defined herein). The Notes will be subject to partial mandatory redemption, at
premiums described herein, in the event that any portion of the Pre-Funded
Amount remains on deposit in the Pre-Funding Account at the end of the Funding
Period (as defined herein). The ratings assigned to the Notes by the Rating
Agencies do not address the likelihood that the premiums will be paid by the
Seller in the event of a partial mandatory redemption or prepayment.
S-2
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE NOTES OFFERED HEREBY.
SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF NOTES TO COVER
SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITING."
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY ARCADIA
FINANCIAL, THE SELLER OR THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO
BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH THIS PROSPECTUS
SUPPLEMENT RELATES OR AN OFFER TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN
OFFER WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND
THE PROSPECTUS NOR ANY SALES MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
UNTIL JUNE 9, 1998 ALL DEALERS EFFECTING TRANSACTIONS IN THE NOTES, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS
SUPPLEMENT AND A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS SUPPLEMENT AND A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
<S> <C>
Reports to Noteholders............ S-4
Incorporation of Certain Documents
by Reference.................... S-4
Summary of the Terms of the
Notes........................... S-6
Risk Factors...................... S-15
Use of Proceeds................... S-17
The Trust......................... S-18
The Trust Property................ S-18
The Receivables Pool.............. S-19
Arcadia Financial Ltd............. S-24
Financial Security Assurance
Inc............................. S-24
<CAPTION>
PAGE
<S> <C>
Description of the Notes.......... S-27
Description of the Purchase
Agreements and the Trust
Documents....................... S-30
The Note Policy................... S-36
Certain Federal Income Tax
Consequences.................... S-37
ERISA Considerations.............. S-41
Underwriting...................... S-42
Legal Matters..................... S-43
Experts........................... S-43
Index of Defined Terms............ S-44
</TABLE>
PROSPECTUS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information............. 2
Reports to Securityholders........ 2
Incorporation of Certain Documents
by Reference.................... 2
Prospectus Summary................ 3
Risk Factors...................... 10
The Trusts........................ 12
The Receivables................... 13
Yield and Prepayment
Considerations.................. 17
Pool Factor....................... 18
Use of Proceeds................... 18
The Seller........................ 18
Arcadia Financial Ltd............. 19
The Certificates.................. 20
<CAPTION>
PAGE
<S> <C>
The Notes......................... 21
Certain Information Regarding the
Securities...................... 25
Description of the Purchase
Agreements and the Trust
Documents....................... 30
Certain Legal Aspects of the
Receivables..................... 45
Certain Federal Income Tax
Consequences.................... 49
ERISA Considerations.............. 49
Plan of Distribution.............. 50
Legal Matters..................... 50
Index of Defined Terms............ 51
Annex I: Global Clearance,
Settlement and Tax Documentation
Procedures...................... A-1
</TABLE>
S-3
<PAGE>
The Notes will be offered by J.P. Morgan Securities Inc., BancAmerica
Robertson Stephens and Donaldson, Lufkin & Jenrette Securities Corporation
(collectively, the "Underwriters") when, as and if issued by the Trust,
delivered to and accepted by the Underwriters and subject to their right to
reject orders in whole or in part. It is expected that delivery of the Notes in
book-entry form will be made through the facilities of The Depository Trust
Company ("DTC"), or through Cedel Bank, societe anonyme ("Cedel") or the
Euroclear System ("Euroclear"), and that delivery of the Notes will be made in
fully registered, certificated form in New York, New York, in each case on or
about March 25, 1998, against payment therefor in immediately available funds.
Definitive Notes will be available only under the limited circumstances
described herein.
There currently is no secondary market for the Notes. The Underwriters
expect, but are not obligated, to make a market in the Notes. There is no
assurance that any such market will develop or continue.
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE NOTES. ADDITIONAL INFORMATION IS CONTAINED IN THE PROSPECTUS,
AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS PROSPECTUS SUPPLEMENT AND
THE PROSPECTUS IN FULL. SALES OF THE NOTES MAY NOT BE CONSUMMATED UNLESS THE
PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
REPORTS TO NOTEHOLDERS
Unless and until Definitive Notes are issued, unaudited monthly and annual
reports, containing information concerning the Trust and prepared by the
Servicer, will be sent on behalf of the Trust to Norwest Bank Minnesota,
National Association, as Indenture Trustee for the Noteholders, Wilmington Trust
Company, as Owner Trustee, and Cede & Co., as registered holder of the Notes and
the nominee of DTC. See "Description of the Purchase Agreements and the Trust
Documents-Statements to Noteholders" herein and "Certain Information Regarding
the Securities-Book-Entry Registration" and "-Statements to Securityholders" in
the accompanying Prospectus. Note Owners may receive such reports, upon written
request, together with (i) a certification that they are Note Owners, and (ii)
payment of any expenses associated with the distribution of such reports, from
the Indenture Trustee at Norwest Bank Minnesota, National Association, Norwest
Center, Sixth Street and Marquette Avenue, Minneapolis, Minnesota 55479-0069,
Attention: Corporate Trust Department. Such reports will not constitute
financial statements prepared in accordance with generally accepted accounting
principles. Neither the Seller, Arcadia Financial nor Financial Security intends
to send any of their respective financial reports to Noteholders (as defined
herein). The Trust will file with the Securities and Exchange Commission (the
"Commission") periodic reports concerning the Trust to the extent required under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules and regulations of the Commission thereunder.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
In addition to the documents described in the accompanying Prospectus under
"Incorporation of Certain Documents by Reference," the financial statements of
Financial Security and Subsidiaries included in, or as exhibits to, the
following documents which have been filed with the Commission by Financial
Security Assurance Holdings Ltd. ("Holdings"), are hereby incorporated by
reference in the Registration Statement of which this Prospectus and Prospectus
Supplement form a part:
(a) Annual Report on Form 10-K for the year ended December 31, 1996,
(b) Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1997,
(c) Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997,
and
S-4
<PAGE>
(d) Quarterly Report on Form 10-Q for the quarterly period ended September 30,
1997.
All financial statements of Financial Security included in documents filed
by Holdings pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Prospectus Supplement and prior to the
termination of the offering of the Notes shall be deemed to be incorporated by
reference into this Prospectus Supplement and to be a part hereof from the
respective dates of filing of such documents.
The Seller will provide without charge to any person to whom this Prospectus
Supplement is delivered, upon the oral or written request of such person, a copy
of any or all of the foregoing financial statements incorporated herein by
reference. Requests for such copies should be directed to Arcadia Receivables
Finance Corp., 7825 Washington Avenue South, Minneapolis, Minnesota 55439-2435,
Attention: Secretary.
The Seller on behalf of the Trust hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Trust's annual report pursuant to Section 13(a) or Section 15(d) of the Exchange
Act and each filing of the financial statements of Financial Security included
in or as an exhibit to the annual report of Holdings filed pursuant to Section
13(a) or Section 15(d) of the Exchange Act that is incorporated by reference in
the Registration Statement (as defined in the accompanying Prospectus) shall be
deemed to be a new registration statement relating to the Notes offered hereby,
and the offering of such Notes at that time shall be deemed to be the initial
bona fide offering thereof.
S-5
<PAGE>
SUMMARY OF THE TERMS OF THE NOTES
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT AND IN
THE ACCOMPANYING PROSPECTUS. CAPITALIZED TERMS USED HEREIN AND NOT OTHERWISE
DEFINED HEREIN SHALL HAVE THE RESPECTIVE MEANINGS ASCRIBED TO SUCH TERMS
ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS.
<TABLE>
<S> <C>
Issuer............................ Arcadia Automobile Receivables Trust, 1998-A (the
"Trust" or the "Issuer"), a Delaware business trust to
be formed on or about March 25, 1998 (the "Closing
Date"), by Arcadia Receivables Finance Corp. (the
"Seller") pursuant to a Trust Agreement, dated as of
March 1, 1998 (the "Trust Agreement"), among the Seller,
Financial Security and Wilmington Trust Company, as
Owner Trustee (the "Owner Trustee").
Seller............................ Arcadia Receivables Finance Corp., a wholly owned
subsidiary of Arcadia Financial. See "The Seller" in the
accompanying Prospectus.
Servicer.......................... Arcadia Financial Ltd. ("Arcadia Financial" or the
"Servicer"). Prior to April 29, 1997, Arcadia Financial
was known as Olympic Financial Ltd.
Indenture Trustee................. Norwest Bank Minnesota, National Association (the
"Indenture Trustee"). See "The Notes-The Indenture
Trustee" in the accompanying Prospectus.
Owner Trustee..................... Wilmington Trust Company, as Owner Trustee under the
Trust Agreement. See "Description of the Purchase
Agreements and the Trust Documents-The Owner Trustee" in
the accompanying Prospectus.
Backup Servicer................... Norwest Bank Minnesota, National Association (the
"Backup Servicer"). Arcadia Financial may be terminated
as Servicer under certain circumstances, at which time
the Backup Servicer will automatically become the
Servicer. See "Description of the Purchase Agreements
and the Trust Documents-Servicer Termination Events" and
"-The Backup Servicer" in the accompanying Prospectus.
The Notes......................... The Trust will issue 5.628% Class A-1 Automobile
Receivables-Backed Notes (the "Class A-1 Notes") in the
aggregate principal amount of $55,650,000, 5.737% Class
A-2 Automobile Receivables-Backed Notes (the "Class A-2
Notes") in the aggregate principal amount of
$175,195,000, 5.900% Class A-3 Automobile
Receivables-Backed Notes (the "Class A-3 Notes") in the
aggregate principal amount of $141,350,000, 6.000% Class
A-4 Automobile Receivables-Backed Notes (the "Class A-4
Notes") in the aggregate principal amount of
$100,305,000 and 6.060% Class A-5 Automobile
Receivables-Backed Notes (the "Class A-5 Notes and,
together with the Class A-1 Notes, the Class A-2 Notes,
the Class A-3 Notes and the Class A-4 Notes, the
"Notes") in the aggregate principal amount of
$52,500,000. The Notes will be issued pursuant to an
Indenture, dated as of March 1, 1998, among the Issuer,
the Indenture Trustee and Norwest Bank Minnesota,
National
</TABLE>
S-6
<PAGE>
<TABLE>
<S> <C>
Association, as Indenture Collateral Agent (the
"Indenture Collateral Agent") for the benefit of
Financial Security and the Indenture Trustee on behalf
of the holders of Notes. The Notes will be offered for
purchase in denominations of $1,000 and integral
multiples thereof in book-entry form only. See "Certain
Information Regarding the Securities-Book-Entry
Registration" in the accompanying Prospectus.
The Notes will be secured by the assets of the Trust
pursuant to the Indenture.
The Receivables................... The Receivables will consist of retail installment sales
contracts and promissory notes purchased from motor
vehicle dealers ("Dealers") by Arcadia Financial in the
ordinary course of business and secured by new and used
automobiles and light trucks (the "Financed Vehicles").
On the Closing Date, the Trust will purchase Receivables
(the "Initial Receivables") that are expected to have an
aggregate principal balance of approximately
$367,500,000 as of March 11, 1998 (the "Initial Cutoff
Date"), from the Seller pursuant to a Sale and Servicing
Agreement, dated as of March 1, 1998 (the "Sale and
Servicing Agreement"), among the Trust, the Seller,
Arcadia Financial, in its individual capacity and as
Servicer, and the Backup Servicer. Following the Closing
Date, pursuant to the Sale and Servicing Agreement, the
Seller will be obligated, subject only to the
availability thereof, to sell, and the Trust will be
obligated to purchase, subject to the satisfaction of
certain conditions set forth therein, additional
Receivables (the "Subsequent Receivables") from time to
time during the Funding Period (as defined below) having
an aggregate principal balance equal to approximately
$157,500,000 (such amount, as reduced from time to time
by the aggregate principal balance of all Subsequent
Receivables purchased by the Trust, being hereafter
referred to as the "Pre-Funded Amount"). With respect to
each sale of Subsequent Receivables to the Trust, the
Seller will designate as a cutoff date (each, a
"Subsequent Cutoff Date") the date as of which such
Subsequent Receivables are sold to the Trust. Subsequent
Receivables will be conveyed to the Trust on
approximately a monthly basis on dates specified by the
Seller (each date on which Subsequent Receivables are
conveyed being referred to as a "Subsequent Transfer
Date") occurring during the Funding Period. See
"Description of the Purchase Agreements and the Trust
Documents-Sale and Assignment of Receivables; Subsequent
Receivables" herein.
The Initial Receivables and the Subsequent Receivables
will be selected from retail installment sales contracts
and promissory notes in Arcadia Financial's portfolio
based on the criteria specified in the Sale and
Servicing Agreement and described herein and in the
accompanying Prospectus. As of February 26, 1998 (the
"Preliminary Cutoff Date"), the weighted average annual
percentage rate (the "APR") of the portion of the
Initial Receivables originated by Arcadia Financial on
or before the
</TABLE>
S-7
<PAGE>
<TABLE>
<S> <C>
Preliminary Cutoff Date (the "Preliminary Initial
Receivables") was approximately 17.16%, the weighted
average remaining maturity of the Preliminary Initial
Receivables was approximately 65.4 months and the
weighted average original maturity of the Preliminary
Initial Receivables was approximately 65.9 months. No
Receivable will have a scheduled maturity later than
June 30, 2005 (the "Final Scheduled Maturity Date"). The
Receivables generally are or will be prepayable at any
time without penalty to the purchaser or co-purchasers
of the Financed Vehicle or any other person who is or
persons who are obligated to make payments thereunder
(each, an "Obligor"). See "The Receivables Pool" herein
and "The Receivables" in the accompanying Prospectus.
Subsequent Receivables may be originated using credit
criteria different from the criteria applied with
respect to the Initial Receivables and may be of a
different credit quality and seasoning. In addition,
following the transfer of Subsequent Receivables to the
Trust, the characteristics of the entire pool of
Receivables included in the Trust may vary from those of
the Preliminary Initial Receivables. See "Risk
Factors-The Receivables and the Pre-Funding Account" and
"The Receivables Pool" herein.
The "Aggregate Principal Balance" of the Receivables as
of any Determination Date means the aggregate principal
balance of the Receivables at the end of the preceding
calendar month (a "Monthly Period") (other than (i) any
Receivable that became a Liquidated Receivable during
such Monthly Period and (ii) any Receivable that the
Seller, Arcadia Financial or the Servicer has
repurchased with respect to the next Distribution Date),
after giving effect to all payments received from
Obligors for such Monthly Period as of the end of such
Monthly Period.
Trust Property.................... Each Note will represent an obligation of the Trust. The
Trust's assets (the "Trust Property") will include,
among other things, a pool of Receivables (the
"Receivables Pool") consisting of the Initial
Receivables and the Subsequent Receivables, certain
monies paid or payable under the Initial Receivables
after the Initial Cutoff Date, certain monies paid or
payable under the Subsequent Receivables after the
respective Subsequent Cutoff Dates, an assignment of
Arcadia Financial's security interests in the Financed
Vehicles and of the right to receive proceeds from
claims on certain insurance policies covering the
Financed Vehicles or the Obligors, an assignment of
certain rights of Arcadia Financial against the Dealers
originating such Receivables, the Collection Account,
the Pre-Funding Account and certain other accounts
(including all investments therein, all income from the
investment of funds therein and all proceeds thereof),
and certain other rights under the Trust Documents. The
Initial Receivables will be purchased by the Seller from
Arcadia Financial pursuant to one or more purchase
agreements (the "Purchase Agreements") between the
Seller and Arcadia Financial on or prior to the date of
issuance of the Notes, and the Subsequent
</TABLE>
S-8
<PAGE>
<TABLE>
<S> <C>
Receivables will be purchased by the Seller from Arcadia
Financial pursuant to one or more purchase agreements
(each, a "Subsequent Purchase Agreement") on or prior to
the applicable Subsequent Transfer Dates. The Trust
Property will also include an assignment of the Seller's
rights under the Purchase Agreements and the Subsequent
Purchase Agreements, including rights against Arcadia
Financial upon the occurrence of certain breaches of
representations and warranties thereunder (a "Repurchase
Event"). See "The Trust" and "The Trust Property"
herein. Pursuant to the Indenture, the Trust Property
will be pledged to the Indenture Collateral Agent for
the benefit of Financial Security and the Indenture
Trustee on behalf of the holders of the Notes.
Terms of the Notes................ The principal terms of the Notes will be as described
below:
A. Distribution Dates............ Payments of interest and principal on the Notes will be
made on the fifteenth day of each month or, if the
fifteenth day is not a Business Day, on the next
following Business Day (each, a "Distribution Date"),
commencing April 15, 1998. Each reference to a "Payment
Date" in the accompanying Prospectus shall refer to a
Distribution Date. Payments will be made to holders of
record of the Notes (the "Noteholders") as of the
Business Day immediately preceding such Distribution
Date (a "Record Date"). A "Business Day" is a day other
than a Saturday, Sunday or other day on which commercial
banks located in Minneapolis, Minnesota or New York, New
York are authorized or obligated to be closed.
B. Interest Rates................ The Class A-1 Notes will bear interest at the rate of
5.628% per annum (the "Class A-1 Rate"), the Class A-2
Notes will bear interest at the rate of 5.737% per annum
(the "Class A-2 Rate"), the Class A-3 Notes will bear
interest at the rate of 5.900% per annum (the "Class A-3
Rate"), the Class A-4 Notes will bear interest at the
rate of 6.000% per annum (the "Class A-4 Rate"), and the
Class A-5 Notes will bear interest at the rate of 6.060%
per annum (the "Class A-5 Rate" and, together with the
Class A-1 Rate, the Class A-2 Rate, the Class A-3 Rate
and the Class A-4 Rate, the "Interest Rates").
C. Interest...................... Interest on the outstanding principal amount of the
Notes of each class will accrue at the applicable
Interest Rate from and including the Closing Date (in
the case of the first Distribution Date) or from and
including the most recent Distribution Date on which
interest has been paid to but excluding the following
Distribution Date (each, an "Interest Period"). Interest
on the Notes for any Distribution Date due but not paid
on such Distribution Date will be due on the next
Distribution Date together with interest on such amount
at the applicable Interest Rate. Interest on the Class
A-1 Notes and the Class A-2 Notes will be calculated on
the basis of the actual number of days elapsed during
the applicable Interest Period divided by 360. Interest
on the Class A-3 Notes, the Class A-4 Notes and the
Class A-5 Notes for each Interest Period will be
calculated on the basis of a 360-day year consisting of
twelve 30-day months.
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D. Principal..................... Principal of the Notes will be payable on each
Distribution Date in an amount equal to the Noteholders'
Principal Distributable Amount for the Monthly Period
preceding such Distribution Date. The Noteholders'
Principal Distributable Amount will equal the sum of the
following amounts with respect to the related Monthly
Period: (i) that portion of all collections on
Receivables (other than Liquidated Receivables and
Purchased Receivables) allocable to principal, including
full and partial principal prepayments, received during
such Monthly Period, (ii) the principal balance of each
Receivable that became a Liquidated Receivable during
such Monthly Period, (iii) the principal balance of each
Receivable that was repurchased by Arcadia Financial or
the Servicer as of the last day of such Monthly Period,
and, at the option of Financial Security, the principal
balance of each Receivable that was required to be, but
was not, so repurchased, (iv) the aggregate amount of
any reduction of the principal balance of a Receivable
as a result of a court order in an insolvency proceeding
and (v) any unpaid portion of the amounts included in
clauses (i), (ii), (iii) and (iv) above with respect to
a prior Distribution Date. See "Description of the
Purchase Agreements and the Trust Docu-
ments-Distributions" herein.
Payments of principal on the Notes will be paid to the
holders of Class A-1 Notes until the principal balance
of the Class A-1 Notes has been reduced to zero, then to
the holders of Class A-2 Notes until the principal
balance of the Class A-2 Notes has been reduced to zero,
then to the holders of Class A-3 Notes until the
principal balance of the Class A-3 Notes has been
reduced to zero, then to the holders of Class A-4 Notes
until the principal balance of the Class A-4 Notes has
been reduced to zero and then to holders of the Class
A-5 Notes until the principal balance of the Class A-5
Notes has been reduced to zero. See "Description of the
Notes-Payments of Principal."
The outstanding principal amount of the Notes of any
class, to the extent not previously paid, will be
payable on the Final Scheduled Distribution Date for
such class specified on page S-2.
E. Optional Redemption........... The Class A-5 Notes, to the extent still outstanding,
may be redeemed in whole, but not in part, on any
Distribution Date on which the Seller or the Servicer
exercises its option to purchase the Receivables, which,
subject to certain provisions in the Sale and Servicing
Agreement, can occur after the Aggregate Principal
Balance declines to 10% or less of the Original Pool
Balance, at a redemption price equal to the unpaid
principal amount of the Notes of each such class plus
accrued and unpaid interest thereon. See "Description of
the Notes-Optional Redemption" herein. The "Original
Pool Balance" will equal the sum of (i) the Aggregate
Principal Balance as of the Initial Cutoff Date plus
(ii) the aggregate principal balances of all Subsequent
Receivables added to the Trust as of their respective
Subsequent Cutoff Dates.
</TABLE>
S-10
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F. Mandatory Redemption.......... Each class of Notes will be redeemed in part on the
Distribution Date on or immediately following the last
day of the Funding Period in the event that any portion
of the Pre-Funded Amount remains on deposit in the
Pre-Funding Account after giving effect to the purchase
of all Subsequent Receivables, including any such
purchase on such date (a "Mandatory Redemption"). The
aggregate principal amount of each class of Notes to be
redeemed will be an amount equal to such class's pro
rata share (based on the respective current principal
balance of each class of Notes) of the Pre-Funded Amount
on such date (such class's "Note Prepayment Amount").
A limited recourse mandatory prepayment premium (the
"Note Prepayment Premium") will be payable by the Trust
to the Noteholders if the Pre-Funded Amount at the end
of the Funding Period exceeds $100,000. The Note
Prepayment Premium for each class of Notes will equal
the excess, if any, discounted as described below, of
(i) the amount of interest that would have accrued on
such class's Note Prepayment Amount at the applicable
Interest Rate during the period commencing on and
including the Distribution Date on which such Note
Prepayment Amount is required to be distributed to
Noteholders of such class to but excluding June 23, 1998
in the case of the Class A-1 Notes, March 20, 1999 in
the case of the Class A-2 Notes, May 15, 2000 in the
case of the Class A-3 Notes, July 31, 2001 in the case
of the Class A-4 Notes and February 28, 2002 in the case
of the Class A-5 Notes, over (ii) the amount of interest
that would have accrued on the applicable Note
Prepayment Amount over the same period at a per annum
rate of interest equal to the bond equivalent yield to
maturity on the Determination Date preceding such
Distribution Date at 3 month London Interbank Offered
Rate ("LIBOR"), in the case of the Class A-1 Notes, at
12 month LIBOR, in the case of the Class A-2 Notes, on
the 6.375% United States Treasury Note due May 15, 2000,
in the case of the Class A-3 Notes, the 6.625% United
States Treasury Note due July 31, 2001, in the case of
the Class A-4 Notes and the 6.250% United States
Treasury Note due February 28, 2002, in the case of the
Class A-5 Notes. Such excess shall be discounted to
present value to such Distribution Date at the
applicable yield described in clause (ii) above. The
Trust's obligation to pay the Note Prepayment Premium
shall be limited to funds which are received from the
Seller under the Sale and Servicing Agreement as
liquidated damages for the failure to deliver Subsequent
Receivables. No other assets of the Trust will be
available for the purpose of making such payment. The
Note Policy does not guarantee payment of the Note
Prepayment Amounts or the Note Prepayment Premiums. In
addition, the ratings assigned to the Notes by the
Rating Agencies do not address the likelihood that the
Note Prepayment Amounts or the Note Prepayment Premiums
will be paid.
</TABLE>
S-11
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<TABLE>
<S> <C>
The Notes may be accelerated and subject to immediate
payment at par upon the occurrence of an Event of
Default under the Indenture. So long as no Insurer
Default shall have occurred and be continuing, an Event
of Default under the Indenture will occur only upon
delivery by Financial Security to the Indenture Trustee
of notice of the occurrence of certain events of default
under the Insurance and Indemnity Agreement, dated as of
March 25, 1998 (the "Insurance Agreement"), among
Financial Security, the Trust, the Seller and Arcadia
Financial. In the case of such an Event of Default, the
Notes will automatically be accelerated and subject to
immediate payment at par. See "Description of the
Notes-Events of Default" herein. The Note Policy does
not guarantee payment of any amounts that become due on
an accelerated basis, unless Financial Security elects,
in its sole discretion, to pay such amounts in whole or
in part. See "The Note Policy" herein.
Pre-Funding Account............... During the period (the "Funding Period") from and
including the Closing Date until the earliest of (i) the
Determination Date on which (a) the Pre-Funded Amount is
less than $100,000, (b) an Event of Default has occurred
under the Indenture or a Servicer Termination Event has
occurred under the Sale and Servicing Agreement, or (c)
certain events of insolvency have occurred with respect
to the Seller or the Servicer or (ii) the close of
business on the May 1998 Distribution Date, the Pre-
Funded Amount will be maintained as an account in the
name of the Indenture Trustee (the "Pre-Funding
Account"). The Pre-Funded Amount is expected to
initially equal approximately $157,500,000 and, during
the Funding Period, will be reduced by the principal
balance of Subsequent Receivables purchased by the Trust
from time to time in accordance with the Sale and
Servicing Agreement. The Seller expects that the
Pre-Funded Amount will be reduced to less than $100,000
by the May 1998 Distribution Date. Any Pre-Funded Amount
remaining at the end of the Funding Period will be
distributed with respect to each class of Notes pro rata
in proportion to the respective principal balances of
each class of Notes.
Reserve Account................... During the Funding Period, funds will be held in a
Reserve Account to cover any shortfalls due to
investment earnings on funds in the Pre-Funding Account
being less than the interest due on a comparable
principal amount of Notes. See "Description of the
Purchase Agreements and the Trust Document-Accounts."
The Note Policy................... On the Closing Date, Financial Security will issue the
Note Policy to the Indenture Trustee pursuant to the
Insurance Agreement. Pursuant to the Note Policy,
Financial Security will unconditionally and irrevocably
guarantee to the Noteholders payment of the Noteholders'
Distributable Amount for each Distribution Date. See
"The Note Policy" and "Description of the Purchase
Agreements and the Trust Document-Distributions" herein.
</TABLE>
S-12
<PAGE>
<TABLE>
<S> <C>
Collection Account................ Except under certain conditions described herein, the
Servicer will establish one or more accounts in the name
of the Indenture Trustee (the "Collection Account") for
the benefit of Noteholders. All payments from Obligors
that are received by the Lockbox Bank on behalf of the
Trust will be deposited in the Collection Account no
later than two Business Days after receipt thereof.
Pursuant to the Sale and Servicing Agreement, the
Indenture Trustee will, based upon the information
contained in the Servicer's Certificate, on each
Distribution Date, withdraw the Available Funds with
respect to such Distribution Date from the Collection
Account and apply such funds to the following (in the
priority indicated):
(i) to the Servicer, the amount the Servicer is
entitled to be reimbursed for prior Monthly Advances,
(ii) to the Owner Trustee and the Indenture Trustee,
any accrued and unpaid trustee fees and any accrued and
unpaid fees of the separate Lockbox Bank, Custodian,
Backup Servicer, Collateral Agent, Indenture Collateral
Agent or Administrator (in each case, to the extent such
fees have not been previously paid by the Servicer or
Arcadia Financial),
(iii) to the Servicer, the Servicing Fee for the
related Monthly Period and any overdue Servicing Fees,
(iv) into the Note Distribution Account, the
Noteholders' Interest Distributable Amount,
(v) into the Note Distribution Account, the
Noteholders' Principal Distributable Amount,
(vi) to Financial Security, amounts owing and not
paid to Financial Security under the Insurance Agreement
and
(vii) the remaining balance, if any, to the Collateral
Agent (as defined herein) on behalf of Financial
Security, the Indenture Trustee (on behalf of the
Noteholders) and the trustees for other trusts and
warehousing facilities established and to be established
by the Seller.
See "Description of the Purchase Agreements and the
Trust Document-Distributions" herein and "Description of
the Purchase Agreements and Trust Document-Collections"
in the accompanying Prospectus.
Tax Status........................ In the opinion of counsel to Arcadia Financial, for
federal income tax purposes, the Notes will be
characterized as debt, and the Trust will not be
characterized as an association (or a publicly traded
partnership) taxable as a corporation. Each Noteholder,
by the acceptance of a Note, will agree to treat the
Notes as debt. Alternative characterizations of the
Trust and the Notes are possible. Such characterizations
could result in adverse tax consequences to certain
Noteholders. See "Certain Federal Income Tax
Consequences" herein.
ERISA Considerations.............. If the Notes are considered to be indebtedness without
substantial equity features under a regulation issued by
the United States Department of Labor, the acquisition
or holding
</TABLE>
S-13
<PAGE>
<TABLE>
<S> <C>
of Notes by or on behalf of a Benefit Plan will not
cause the assets of the Trust to become plan assets,
thereby generally preventing the application of certain
prohibited transaction rules of the Employment
Retirement Income Security Act of 1974, as amended, and
the Internal Revenue Code of 1986, as amended, that
otherwise could possibly be applicable. The Seller
believes that the Notes should be treated as
indebtedness without substantial equity features for
purposes of such regulation.
Legal Investment.................. The Class A-1 Notes will be eligible securities for
purchase by money market funds under Rule 2a-7(a)(9)
under the Investment Company Act of 1940, as amended.
Ratings........................... It is a condition of issuance that the Class A-1 Notes
be rated A-1+ by Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc. ("S&P") and
P-1 by Moody's Investors Service, Inc. ("Moody's" and,
together with S&P, the "Rating Agencies"), and the Class
A-2 Notes, the Class A-3 Notes, the Class A-4 Notes and
the Class A-5 Notes each be rated AAA by S&P and Aaa by
Moody's. The rating by S&P of the Class A-1 Notes will
be issued without regard to the benefit afforded by the
Note Policy. The rating by S&P of the Class A-2 Notes,
the Class A-3 Notes, the Class A-4 Notes and the Class
A-5 Notes will be based on the issuance of the Note
Policy by Financial Security. The rating by Moody's of
the Class A-1 Notes will be substantially based on the
issuance of the Note Policy by Financial Security, and
the rating by Moody's of the Class A-2 Notes, the Class
A-3 Notes, the Class A-4 Notes and the Class A-5 Notes
will be based on the issuance of the Note Policy by
Financial Security. The Rating Agencies do not evaluate,
and the ratings do not address, the likelihood that the
Note Prepayment Amounts or the Note Prepayment Premiums
will be paid. There is no assurance that the ratings
initially assigned to the Notes will not subsequently be
lowered or withdrawn by the Rating Agencies. See "Risk
Factors-Ratings on Notes" herein.
</TABLE>
S-14
<PAGE>
RISK FACTORS
Prospective Noteholders should consider, in addition to the factors
described under "Risk Factors" in the accompanying Prospectus, the following
factors in connection with the purchase of the Notes:
THE RECEIVABLES AND THE PRE-FUNDING ACCOUNT
On the Closing Date, approximately $367,500,000 of Initial Receivables will
be transferred to the Trust by the Seller and the approximately $157,500,000
Pre-Funded Amount will be deposited by the Trust in the Pre-Funding Account. If
the principal amount of eligible Receivables originated by Arcadia Financial
during the Funding Period is less than the Pre-Funded Amount, the Seller will
have insufficient Receivables to sell to the Trust on the Subsequent Transfer
Dates, thereby resulting in a prepayment of principal to the Noteholders as
described in the following paragraph. See "-Trust's Relationship to the Seller
and Arcadia Financial" below. In addition, any conveyance of Subsequent
Receivables is subject to the satisfaction, on or before the related Subsequent
Transfer Date, of the following conditions, among others: (i) each such
Subsequent Receivable satisfies the eligibility criteria specified in the Sale
and Servicing Agreement; (ii) Financial Security (so long as no Insurer Default
shall have occurred and be continuing) shall in its sole and absolute discretion
have approved the transfer of such Subsequent Receivables to the Trust; (iii) as
of the applicable Subsequent Cutoff Date, the Receivables in the Trust, together
with the Subsequent Receivables to be conveyed by the Seller as of such
Subsequent Cutoff Date, meet the following criteria (computed based on the
characteristics of the Initial Receivables on the Initial Cutoff Date and any
Subsequent Receivables as of the related Subsequent Cutoff Date): (a) the
weighted average APR of such Receivables will not be less than one percent less
than the weighted average APR of the Preliminary Initial Receivables on the
Preliminary Cutoff Date, (b) the weighted average remaining term of such
Receivables will not be greater than 67 months nor less than 63 months, (c) not
more than 90% of the principal balances of such Receivables will be attributable
to Loans for the purchase of used Financed Vehicles, (d) not more than 66% of
the Aggregate Principal Balance of such Receivables will represent Receivables
originated under Arcadia Financial's "Classic" program and (e) not more than 4%
of the principal balances of such Receivables will have an APR in excess of 21%,
and the Trust, the Indenture Trustee, the Owner Trustee and Financial Security
shall have received written confirmation from a firm of certified independent
public accountants as to the satisfaction of the criteria in clauses (a) through
(e) above; (iv) the Seller shall have executed and delivered to the Trust (with
a copy to the Indenture Trustee) a written assignment (a "Subsequent Transfer
Agreement") conveying such Subsequent Receivables to the Trust (including a
schedule identifying such Subsequent Receivables); (v) the Seller shall have
delivered certain opinions of counsel to the Indenture Trustee, the Owner
Trustee, Financial Security and the Rating Agencies with respect to the validity
of the conveyance of all such Subsequent Receivables; and (vi) the Rating
Agencies shall have notified the Seller, the Owner Trustee, the Indenture
Trustee and Financial Security in writing that, following the addition of such
Subsequent Receivables, the Class A-1 Notes will be rated A-1+ by S&P and P-1 by
Moody's, and the Class A-2 Notes, the Class A-3 Notes, the Class A-4 Notes and
the Class A-5 Notes will each be rated AAA by S&P and Aaa by Moody's. Such
confirmation of the ratings of the Notes may depend on factors other than the
characteristics of the Subsequent Receivables, including the delinquency,
repossession and net loss experience on the Receivables in the Receivables Pool.
To the extent that the Pre-Funded Amount has not been fully applied to the
purchase of Subsequent Receivables by the Trust during the Funding Period, the
Noteholders will receive, on the Distribution Date on or immediately following
the last day of the Funding Period, a prepayment of principal in an amount equal
to their pro rata share (based on the current principal balance of each class of
Notes) of any remaining Pre-Funded Amount following the purchase of any
Subsequent Receivables on such Distribution Date. It is anticipated that the
principal amount of Subsequent Receivables sold to the Trust will not be exactly
equal to the original Pre-Funded Amount and that therefore there will be at
least a nominal amount of principal prepaid to the Noteholders.
S-15
<PAGE>
Each Subsequent Receivable must satisfy the eligibility criteria specified
in the Sale and Servicing Agreement. However, Subsequent Receivables may have
been originated using credit criteria different from the criteria applied with
respect to the Initial Receivables and may be of a different credit quality and
seasoning. See "The Receivables Pool" herein.
TRUST'S RELATIONSHIP TO THE SELLER AND ARCADIA FINANCIAL
Neither the Seller nor Arcadia Financial is generally obligated to make any
payments in respect of the Notes or the Receivables. However, the ability of the
Seller to convey Subsequent Receivables on Subsequent Transfer Dates is
completely dependent upon the generation of additional receivables by Arcadia
Financial. If, during the Funding Period, Arcadia Financial is unable to
generate or does not transfer sufficient Receivables to the Seller, the ability
of the Seller to sell Subsequent Receivables to the Trust would be adversely
affected. There can be no assurance that Arcadia Financial will continue to
generate receivables that satisfy the criteria set forth in the Sale and
Servicing Agreement at the same rate as in recent months or that Financial
Security, in its sole and absolute discretion, will approve any such transfer of
Subsequent Receivables. The Trust's obligation to pay prepayment premiums on the
Notes, if required at the end of the Funding Period, is limited to amounts
received from the Seller for that purpose, and the Seller's obligation to pay
such amounts is limited to amounts received from Arcadia Financial as liquidated
damages under the Purchase Agreement. See "Arcadia Financial Ltd.-Recent
Developments" herein.
In connection with each sale of Receivables by Arcadia Financial to the
Seller and by the Seller to the Trust, each of Arcadia Financial and the Seller
will make representations and warranties with respect to the characteristics of
such Receivables. In certain circumstances, Arcadia Financial is required to
repurchase Receivables with respect to which such representations or warranties
are not true as of the date made. Neither Arcadia Financial nor the Seller is
otherwise obligated with respect to the Notes. See "Description of the Purchase
Agreements and the Trust Documents-Sale and Assignment of the Receivables" in
the accompanying Prospectus.
LIMITED ASSETS
The Trust will not have, nor is it permitted or expected to have, any
significant assets or sources of funds other than the Receivables, the
Pre-Funding Account, the Reserve Account and the Note Policy. Holders of the
Notes must rely for repayment upon payments on the Receivables and, if and to
the extent available, amounts on deposit in the Pre-Funding Account and the
Reserve Account (as defined herein) and payments of claims made under the Note
Policy. The Pre-Funding Account and the Reserve Account will only be maintained
until the Distribution Date on or immediately following the last day of the
Funding Period. The Pre-Funded Amount on deposit in the Pre-Funding Account will
be used solely to purchase Subsequent Receivables and is not available to cover
losses on the Receivables. The Reserve Account is designed to cover obligations
of the Trust relating to that portion of its assets not invested in Receivables
and is not designed to provide substantial protection against losses on the
Receivables. Similarly, although the Note Policy will be available on each
Distribution Date to cover shortfalls in distributions of the Noteholders'
Distributable Amount on such Distribution Date, if Financial Security defaults
in its obligations under the Note Policy, the Trust will depend on current
distributions on the Receivables to make payments on the Notes. See "Financial
Security Assurance Inc." and "The Note Policy" herein.
RATINGS ON NOTES
It is a condition to the issuance of the Notes that the Class A-1 Notes be
rated A-1+ by S&P and P-1 by Moody's, and that the Class A-2 Notes, the Class
A-3 Notes, the Class A-4 Notes and the Class A-5 Notes each be rated AAA by S&P
and Aaa by Moody's. A rating is not a recommendation to purchase, hold or sell
Notes. The ratings of the Notes address the likelihood of the payment of
principal and interest on the Notes pursuant to their terms. However, the Rating
Agencies do not evaluate, and the ratings of the
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<PAGE>
Notes and do not address, the likelihood that the Note Prepayment Amounts or the
Note Prepayment Premiums will be paid. There is no assurance that a rating will
remain in effect for any given period of time or that a rating will not be
lowered or withdrawn entirely by a Rating Agency if in its judgment
circumstances in the future so warrant. In the event that any ratings initially
assigned to the Notes were subsequently lowered or withdrawn for any reason,
including by reason of a downgrading of Financial Security's claims-paying
ability, no person or entity will be obligated to provide any additional credit
enhancement with respect to the Notes. Any reduction or withdrawal of a rating
may have an adverse effect on the liquidity and market price of the Notes.
EVENTS OF DEFAULT UNDER THE INDENTURE
So long as no Insurer Default shall have occurred and be continuing, neither
the Indenture Trustee nor the Noteholders may declare an Event of Default under
the Indenture. So long as an Insurer Default shall not have occurred and be
continuing, an Event of Default will occur only upon delivery by Financial
Security to the Indenture Trustee of notice of the occurrence of certain events
of default under the Insurance Agreement. Upon the occurrence of an Event of
Default under the Indenture (so long as an Insurer Default shall not have
occurred and be continuing), Financial Security will have the right, but not the
obligation, to cause the liquidation, in whole or in part, of the Trust
Property, which will result in redemption, in whole or in part, of the Notes.
Following the occurrence of an Event of Default, the Indenture Trustee and the
Owner Trustee will continue to submit claims under the Note Policy as necessary
to enable the Trust to continue to make payments of the Noteholders'
Distributable Amount on each Distribution Date. However, following the
occurrence of an Event of Default, Financial Security may elect to pay all or
any portion of the outstanding amount of the Notes, plus accrued interest
thereon.
WEIGHTED AVERAGE LIVES OF THE NOTES
The weighted average lives of the Notes will be influenced by, among other
things, the rate at which principal is paid on the Receivables. In general, the
weighted average lives of the Notes will be shortened if the level of
prepayments of principal of the Receivables increases. The weighted average
lives will also depend upon a variety of other factors, including the timing of
any changes in the rate of principal prepayments on the Receivables.
Accordingly, no assurance can be given as to the weighted average life of any
class of Notes. Further, to the extent the prices of the Notes represent
discounts or premiums to their respective original principal balances,
variability in the weighted average lives of such class of Notes could result in
variability in the related yields to maturity.
FINAL SCHEDULED DISTRIBUTION DATES OF THE NOTES
The Final Scheduled Distribution Date for each class of Notes, which is
specified at page S-2 herein, is the date by which the principal thereof is
required to be fully paid. The Final Scheduled Distribution Date for each class
of Notes has been determined so that distributions on the underlying Receivables
will be sufficient to retire each such class on or before its respective Final
Scheduled Distribution Date without the necessity of a claim on the Note Policy.
However, because (i) some prepayments of the Receivables are likely and (ii)
certain of the Receivables have terms to maturity that are shorter than the term
to maturity assumed in calculating each class's Final Scheduled Distribution
Date, the actual payment of any class of Notes likely will occur earlier, and
could occur significantly earlier, than such class's Final Scheduled
Distribution Date. Nevertheless, there can be no assurance that the final
distribution of principal of any or all classes of Notes will be earlier than
such class's Final Scheduled Distribution Date.
USE OF PROCEEDS
The net proceeds to be received by the Seller from the sale of the Notes
will be used to pay to Arcadia Financial or a warehouse facility the purchase
price for the Receivables, to make the deposits of the Pre-Funded Amount into
the Pre-Funding Account and to make the deposit of the Requisite Reserve Amount
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<PAGE>
into the Reserve Account. The net proceeds to be received by Arcadia Financial
will be used to pay certain warehouse loans, and any additional proceeds will be
added to Arcadia Financial's general funds and used for its general corporate
purposes. See "Arcadia Financial Ltd." in the accompanying Prospectus.
THE TRUST
The following information supplements the information contained in the
accompanying Prospectus. Prospective Noteholders should consider, in addition to
the information below, the information under "The Trusts" in the accompanying
Prospectus.
GENERAL
The Issuer, Arcadia Automobile Receivables Trust, 1998-A, is a business
trust formed under the laws of the State of Delaware pursuant to the Trust
Agreement for the transactions described in this Prospectus Supplement. After
its formation, the Trust will not engage in any activity other than (i)
acquiring, holding and managing the Receivables and the other assets of the
Trust and proceeds therefrom, (ii) issuing the Notes, (iii) making payments on
the Notes and (iv) engaging in other activities that are necessary, suitable or
convenient to accomplish the foregoing or are incidental thereto or connected
therewith. The proceeds of the initial sale of the Notes will be used by the
Trust to purchase the Initial Receivables from the Seller pursuant to the Sale
and Servicing Agreement and to fund the deposits in the Pre-Funding Account and
the Reserve Account (described under "Description of the Purchase Agreements and
the Trust Documents-Accounts" herein).
The Trust's principal offices are in Wilmington, Delaware, in care of
Wilmington Trust Company, as Owner Trustee, at the address listed below under
"-The Owner Trustee."
CAPITALIZATION OF THE TRUST
The following table illustrates the capitalization of the Trust as of the
Initial Cutoff Date, as if the issuance and sale of the Notes had taken place on
such date:
<TABLE>
<S> <C>
Class A-1 Notes......................... $ 55,650,000
Class A-2 Notes......................... $175,195,000
Class A-3 Notes......................... $141,350,000
Class A-4 Notes......................... $100,305,000
Class A-5 Notes......................... $ 52,500,000
------------
Total............................... $525,000,000
------------
------------
</TABLE>
THE OWNER TRUSTEE
Wilmington Trust Company is the Owner Trustee under the Trust Agreement.
Wilmington Trust Company's principal offices are located at Rodney Square North,
1100 North Market Street, Wilmington, Delaware 19890-0001. The Seller and its
affiliates may maintain commercial banking relations with the Owner Trustee and
its affiliates. The Owner Trustee will perform limited administrative functions
under the Trust Agreement. The Owner Trustee's liability in connection with the
issuance and sale of the Notes is limited solely to the express obligations of
the Owner Trustee set forth in the Trust Agreement and the Sale and Servicing
Agreement.
THE TRUST PROPERTY
The Trust Property will include, among other things, (i) the Receivables
Pool consisting of the Initial Receivables and the Subsequent Receivables; (ii)
all monies paid or payable under the Initial Receivables
S-18
<PAGE>
after the Initial Cutoff Date and under the Subsequent Receivables after the
respective Subsequent Cutoff Dates; (iii) such amounts as from time to time may
be held in the Lockbox Account, the Collection Account and certain other
accounts established and maintained by the Servicer pursuant to the Sale and
Servicing Agreement, as described below (including all investments in the
Collection Account and such other accounts and all income from the investment of
funds therein and all proceeds thereof); (iv) monies on deposit in the
Pre-Funding Account and the Reserve Account (as defined herein) (including all
investments in such accounts and all income from the investment of the funds
therein and all proceeds thereof); (v) an assignment of the security interests
of Arcadia Financial in the Financed Vehicles; (vi) an assignment of the right
to receive proceeds from the exercise of rights against Dealers under agreements
between Arcadia Financial and such Dealers (the "Dealer Agreements") and the
assignment of rights in respect of each Receivable from the applicable Dealer to
Arcadia Financial (the "Dealer Assignments"); (vii) an assignment of the right
to receive proceeds from claims on certain insurance policies covering the
Financed Vehicles or the Obligors; (viii) an assignment of the rights of the
Seller under the Purchase Agreements and any Subsequent Purchase Agreement; and
(ix) certain other rights under the Trust Documents. See "The Receivables" and
"Description of the Purchase Agreements and the Trust Documents-Collections" in
the accompanying Prospectus.
Pursuant to the Indenture the Trust will grant a security interest in the
Trust Property in favor of the Indenture Collateral Agent for the benefit of the
Indenture Trustee on behalf of the Noteholders and for the benefit of Financial
Security in support of the obligations owing to it under the Insurance
Agreement. Any proceeds of such security interest in the Trust Property would be
distributed according to the Indenture, as described below under "Description of
the Purchase Agreements and the Trust Documents-Distributions." Financial
Security would be entitled to such distributions only after payment of amounts
owing to, among others, holders of the Notes.
Arcadia Financial, as custodian, will hold the original installment sales
contract or promissory note as well as copies of documents and instruments
relating to each Receivable and evidencing the security interest in the Financed
Vehicle securing each Receivable (the "Receivable Files"). In order to protect
the Trust's ownership interest in the Receivables, Arcadia Financial and the
Seller will each file a UCC-1 financing statement in Minnesota to give notice of
the Trust's ownership of the Receivables and the related Trust Property.
THE RECEIVABLES POOL
GENERAL
The Receivables Pool will include the Initial Receivables and all amounts
due thereunder after the Initial Cutoff Date, and any Subsequent Receivables and
all amounts due thereunder after the applicable Subsequent Cutoff Date (the
Initial Cutoff Date or any Subsequent Cutoff Date being individually referred to
herein as a "Cutoff Date"). Certain information with respect to the Receivables
is set forth under the heading "The Receivables" in the accompanying Prospectus.
All of the Receivables are or will be retail installment sales contracts or
promissory notes purchased in the ordinary course of business by Arcadia
Financial from Dealers who regularly originate and sell such contracts or notes
to Arcadia Financial. Retail installment sales contracts and promissory notes
are hereinafter referred to individually as a "Loan" or collectively as "Loans."
The Initial Receivables and the Subsequent Receivables were or will be selected
from Arcadia Financial's portfolio for inclusion in the Receivables Pool in
compliance with several criteria, some of which are set forth below under
"-Selection Criteria." No selection procedures believed by Arcadia Financial or
by the Seller to be adverse to Noteholders were used or will be used in
selecting the Receivables.
The obligation of the Trust to purchase the Subsequent Receivables on a
Subsequent Transfer Date will be subject to the Receivables in the Trust,
together with the Subsequent Receivables to be conveyed to the Trust on such
Subsequent Transfer Date, meeting the following criteria (computed based on the
S-19
<PAGE>
characteristics of the Initial Receivables on the Initial Cutoff Date and any
Subsequent Receivables as of the related Subsequent Cutoff Date): (i) the
weighted average APR of such Receivables will not be less than one percent less
than the weighted average APR of the Preliminary Initial Receivables on the
Preliminary Cutoff Date; (ii) the weighted average remaining term of such
Receivables will not be greater than 67 months nor less than 63 months; (iii)
not more than 90% of the principal balances of such Receivables will be
attributable to Loans for the purchase of used Financed Vehicles; (iv) not more
than 66% of the Aggregate Principal Balance of such Receivables will represent
Receivables originated under Arcadia Financial's "Classic" program; and (v) not
more than 4% of the principal balances of such Receivables will have an APR in
excess of 21%.
The aggregate principal balance of the Initial Receivables is expected to be
equal to approximately 70% of the aggregate initial principal balance of the
Notes. However, except for the criteria described in the preceding paragraphs,
there will be no required characteristics of the Subsequent Receivables and the
Receivables included in the Initial Receivables originated after the Preliminary
Cutoff Date. Therefore, following the transfer of Subsequent Receivables to the
Trust, the aggregate characteristics of the entire Receivables Pool, including
the composition of the Receivables, the distribution by APR and the geographic
distribution described in the following tables, may vary from those of the
Preliminary Initial Receivables.
DELINQUENCY, CREDIT LOSS AND REPOSSESSION INFORMATION
The following tables set forth information relating to Arcadia Financial's
delinquency, credit loss and repossession experience for each period indicated
with respect to all Loans it has purchased and continues to service. This
information includes the experience with respect to all Loans in Arcadia
Financial's portfolio of Loans serviced during each such period, including Loans
which do not meet the criteria for selection as a Receivable. At the Preliminary
Cutoff Date, the Preliminary Initial Receivables represented approximately 5.6%,
by principal balance, of Arcadia Financial's portfolio of Loans serviced.
DELINQUENCY EXPERIENCE(1)
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
AT DECEMBER 31,
-------------------------------------------------------------
1995 1996 1997
------------------- ------------------- -------------------
<CAPTION>
NUMBER NUMBER NUMBER
OF OF OF
LOANS BALANCES LOANS BALANCES LOANS BALANCES
------- ---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Servicing Portfolio at End of Period.............. 185,241 $2,267,107 302,450 $3,791,857 411,429 $4,956,090
Delinquencies:
31-60 days...................................... 1,536 $ 17,667 3,884 $ 47,225 8,297 $ 100,161
61-90 days...................................... 520 5,694 1,255 15,877 3,635 45,485
91 days or more................................. 614 6,881 2,911 37,019 3,019 34,047
------- ---------- ------- ---------- ------- ----------
Total Automobile Loans Delinquent 31 or More
Days............................................ 2,670 $ 30,242 8,050 $ 100,121 14,951 $ 179,693
Delinquencies as a Percentage of Number of Loans
and Amount outstanding at End of Period (2)..... 1.44 % 1.33% 2.66 % 2.64% 3.63 % 3.63%
Amount in Repossession (3)........................ 1,489 $ 17,676 4,651 $ 64,929 6,083 $ 55,300
------- ---------- ------- ---------- ------- ----------
Total Delinquencies and Amount in Repossession
(2)............................................. 4,159 $ 47,918 12,701 $ 165,050 21,034 $ 234,993
------- ---------- ------- ---------- ------- ----------
------- ---------- ------- ---------- ------- ----------
</TABLE>
- ------------------------------
(1) All amounts and percentages are based on the principal amount scheduled to
be paid on each Loan. The information in the table includes previously sold
Loans which Arcadia Financial continues to service.
(2) Amounts shown do not include Loans which are less than 31 days delinquent.
(3) Amount in Repossession represents Financed Vehicles which have been
repossessed but not yet liquidated.
S-20
<PAGE>
CREDIT LOSS AND REPOSSESSION EXPERIENCE(1)
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
<CAPTION>
--------------------------------
1995 1996 1997
-------- ---------- ----------
<S> <C> <C> <C>
Average Servicing Portfolio Outstanding During the
Period.......................................... $1,534,720 $3,015,411 $4,458,677
Average Number of Loans Outstanding During the
Period.......................................... 128,783 242,419 362,626
Number of Charge-Offs............................. 5,020 14,403 24,616
Gross Charge-Offs (2)............................. $ 11,247 $ 35,642 $ 165,233
Recoveries (3).................................... 911 5,653 9,855
-------- ---------- ----------
Net Losses........................................ $ 10,336 $ 29,989 $ 155,378
-------- ---------- ----------
-------- ---------- ----------
Gross Charge-Offs as a Percentage of Average
Servicing Portfolio............................. 0.73% 1.18% 3.71%
Net Losses as a Percentage of Average Servicing
Portfolio....................................... 0.67% 0.99% 3.48%
</TABLE>
- ------------------------------
(1) All amounts and percentages are based on the principal amount scheduled to
be paid on each Loan. The information in the table includes previously sold
Loans which Arcadia Financial continues to service.
(2) Gross charge-offs represent principal amounts which management estimated to
be uncollectable after the consideration of anticipated proceeds from the
disposition of repossessed assets and selling expenses.
(3) Includes post-disposition amounts received on previously charged off Loans.
The increase in delinquencies, gross charge-offs and net losses during 1997
was primarily due to the continued seasoning of Arcadia Financial's existing
servicing portfolio to include a greater proportion of loans in the period of
highest probability for delinquencies and defaults (generally six to 14 months
from the date of origination), especially with respect to Arcadia Financial's
Premier loan portfolio. Much of the increase in delinquencies, gross charge-offs
and net losses was due to performance of loans originated in 1995 and the first
half of 1996, which represent approximately 30% of the servicing portfolio. As
expected, delinquencies, gross charge-offs and net losses also increased during
1997 as a result of a rise in the proportion of Classic loans in Arcadia
Financial's portfolio. At December 31, 1997, the portfolio consisted of
approximately 43% Classic loans compared to 29% at December 31, 1996. Net losses
during the year were further affected by selling an increased proportion of
repossessed vehicles through wholesale auctions. During 1997, Arcadia Financial
liquidated approximately 54% of all repossessed vehicles sold through wholesale
auctions compared to 30% during 1996. Because recovery rates are generally lower
on vehicles sold at auction compared to those liquidated through retail
channels, the increased utilization of auctions has increased net losses
experienced by Arcadia Financial. Included in the 1997 gross charge-off and net
loss statistics is a special charge of approximately $25 million resulting from
a revision to Arcadia Financial's inventory valuation policy, which requires
Arcadia Financial to record all repossessed vehicles at recovery rates that
reflect expected values to be achieved through wholesale auctions, regardless of
the specific asset disposition strategy to be employed.
The increase in the rate of delinquencies, gross charge-offs, net losses and
repossessions during 1996, experienced by both the Premier and Classic programs,
was primarily due to (i) increased demands on Arcadia Financial's servicing and
collection resources as the result of rapid growth in its servicing portfolio
and as a result of continued expansion of the Classic loan program (which
generally requires greater collection efforts than the Premier program), (ii)
the performance of Arcadia Financial's discontinued Classic product for first
time automobile buyers and Arcadia Financial's financed repossession program,
which experienced significantly higher delinquencies, repossessions and losses
than Arcadia Financial's other products and programs and (iii) the continued
seasoning of Arcadia Financial's servicing portfolio. The significant rise in
repossession inventory levels during 1996 was the result of the growth in
Arcadia Financial's servicing portfolio and increased utilization of retail
distribution channels to liquidate repossessed automobiles.
The Loans in Arcadia Financial's servicing portfolio include Loans other
than the Receivables, including Loans which do not meet the criteria for
selection as a Receivable. There can be no assurance that the delinquency, loan
loss or repossession experience of the Trust with respect to the Receivables
will be better than, worse than or comparable to the experience set forth above.
S-21
<PAGE>
SELECTION CRITERIA
The Preliminary Initial Receivables represent substantially all Loans in
Arcadia Financial's portfolio, owned and not serviced for others, that (i) were
not more than 30 days past due as of the Preliminary Cutoff Date, (ii) did not
have a remaining principal balance as of the Preliminary Cutoff Date less than
$500.00, (iii) did not have a final scheduled payment date prior to June 1,
1998, and (iv) were otherwise eligible under criteria established by Arcadia
Financial and Financial Security.
CERTAIN OTHER CHARACTERISTICS
The Preliminary Initial Receivables (i) had a remaining maturity, as of the
Preliminary Cutoff Date, of at least 3 months, but not more than 84 months, (ii)
had an original maturity of at least 6 months, but not more than 84 months,
(iii) had an original principal balance of at least $1,044.70 and not more than
$41,653.54, (iv) had a remaining principal balance, as of the Preliminary Cutoff
Date, of at least $1,031.19 and not more than $41,653.54 and (v) had an APR of
at least 8.00% and not more than 24.00%. Approximately 11.23% of the Aggregate
Principal Balance of the Preliminary Initial Receivables, as of the Preliminary
Cutoff Date, was attributable to Loans for the purchase of new Financed
Vehicles, and approximately 88.77% of the Aggregate Principal Balance was
attributable to Loans for the purchase of used Financed Vehicles. The
Preliminary Initial Receivables were purchased from more than 3,800 Dealers. Not
more than 0.68% of the Aggregate Principal Balance of the Preliminary Initial
Receivables as of the Preliminary Cutoff Date was originated by any single
Dealer. The ten most significant Dealers, each of whom individually accounted
for at least 0.29% of the Aggregate Principal Balance as of the Preliminary
Cutoff Date, in the aggregate, originated approximately 3.62% of the Aggregate
Principal Balance as of the Preliminary Cutoff Date. Approximately 97.33% of the
Preliminary Initial Receivables, by principal balance, are simple interest
obligations, and interest on the remaining 2.67% of the Preliminary Initial
Receivables is computed on an actuarial basis, with prepayment rebates computed
according to the Rule of 78's. Neither the Seller, Arcadia Financial nor the
Servicer may substitute other Loans for the Receivables at any time during the
term of the Sale and Servicing Agreement.
The composition and distribution by APR and geographic concentration of the
Receivables Pool as of the Preliminary Cutoff Date are set forth in the
following tables:
COMPOSITION OF THE PRELIMINARY INITIAL RECEIVABLES
AS OF THE PRELIMINARY CUTOFF DATE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
WEIGHTED
AVERAGE AGGREGATE NUMBER OF AVERAGE WEIGHTED AVERAGE
APR OF PRINCIPAL RECEIVABLES IN PRINCIPAL WEIGHTED AVERAGE ORIGINAL SCHEDULED
RECEIVABLES BALANCE POOL BALANCE REMAINING TERM (1) TERM (1)
- ----------- ------------------- -------------- ---------- ------------------ ------------------
17.16 % $ 281,229,318.32 20,721 $13,572.19 65.4 months 65.9 months
</TABLE>
- ------------------------------
(1) Based on scheduled payments due after the Preliminary Cutoff Date (in the
case of the Weighted Average Remaining Term) and assuming no prepayments on
the Preliminary Initial Receivables.
S-22
<PAGE>
DISTRIBUTION BY APR OF THE PRELIMINARY INITIAL RECEIVABLES
AS OF THE PRELIMINARY CUTOFF DATE
<TABLE>
<CAPTION>
------------------------------------------------------
<S> <C> <C> <C>
NUMBER OF AGGREGATE PERCENT OF AGGREGATE
APR RANGE (%) RECEIVABLES PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------------------------- ----------- ----------------- --------------------
8.00 to 8.99.......................... 12 $ 67,013.73 0.02%
9.00 to 9.99.......................... 28 270,027.43 0.10
10.00 to 10.99.......................... 119 1,777,618.87 0.63
11.00 to 11.99.......................... 431 6,902,688.80 2.45
12.00 to 12.99.......................... 972 15,880,226.70 5.65
13.00 to 13.99.......................... 1,198 19,340,478.00 6.88
14.00 to 14.99.......................... 1,431 22,719,974.76 8.08
15.00 to 15.99.......................... 1,442 21,766,216.87 7.74
16.00 to 16.99.......................... 2,177 32,446,031.42 11.54
17.00 to 17.99.......................... 3,238 45,011,197.68 16.01
18.00 to 18.99.......................... 3,363 43,321,383.40 15.40
19.00 to 19.99.......................... 3,162 39,770,408.52 14.14
20.00 to 20.99.......................... 2,044 21,992,054.30 7.82
21.00 to 21.99.......................... 824 7,531,938.41 2.68
22.00 to 22.99.......................... 157 1,382,671.76 0.49
23.00 to 23.99.......................... 123 1,049,387.67 0.37
----------- ----------------- ------
20,721 $281,229,318.32 100.00%
----------- ----------------- ------
----------- ----------------- ------
</TABLE>
GEOGRAPHIC CONCENTRATION OF THE PRELIMINARY INITIAL RECEIVABLES
AS OF THE PRELIMINARY CUTOFF DATE
<TABLE>
<CAPTION>
------------------------------------------------------
<S> <C> <C> <C>
NUMBER OF AGGREGATE PERCENT OF AGGREGATE
STATE RECEIVABLES PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------------------------- ----------- ----------------- --------------------
Texas................................... 3,559 $ 52,422,521.38 18.64%
Florida................................. 1,620 22,346,918.48 7.95
Tennessee............................... 1,462 19,653,878.48 6.99
California.............................. 1,210 16,863,380.69 6.00
Georgia................................. 1,024 14,514,819.35 5.16
Oklahoma................................ 768 10,492,339.68 3.73
Oregon.................................. 772 10,371,913.53 3.69
Colorado................................ 757 9,988,098.31 3.55
South Carolina.......................... 699 9,557,323.02 3.40
North Carolina.......................... 663 9,433.209.20 3.35
Washington.............................. 706 9,174,675.59 3.26
Missouri................................ 718 9,162,667.61 3.26
Arizona................................. 593 8,375,018.21 2.98
Minnesota............................... 565 7,009,084.73 2.49
Massachusetts........................... 526 6,377,261.74 2.27
New York................................ 571 6,325,896.25 2.25
Nevada.................................. 375 5,570,603.80 1.98
Connecticut............................. 416 5,324,373.82 1.89
Maryland................................ 298 4,147,262.45 1.47
Utah.................................... 262 3,707,001.12 1.32
Wisconsin............................... 306 3,638,279.86 1.29
Kentucky................................ 255 3,344,808.33 1.19
New Mexico.............................. 226 3,222,914.54 1.15
Ohio.................................... 249 3,131,783.17 1.11
Pennsylvania............................ 187 2,415,992.70 0.86
Virginia................................ 167 2,378,546.00 0.85
Nebraska................................ 189 2,323,996.61 0.83
Mississippi............................. 160 2,190,076.62 0.78
All other states........................ 1,418 17,764,673.05 6.31
----------- ----------------- ------
20,721 $281,229,318.32 100.00%
----------- ----------------- ------
----------- ----------------- ------
</TABLE>
S-23
<PAGE>
ARCADIA FINANCIAL LTD.
Arcadia Financial acquired Loans totalling approximately $305.8 million,
$743.3 million, $2,052.4 million, $2,750.6 million and $2,862.8 million for the
calendar years ended December 31, 1993, 1994, 1995, 1996 and 1997, respectively,
and maintained, as of December 31, 1997, a servicing portfolio of approximately
$4,956.1 million, consisting of approximately $47.8 million of Loans owned and
held for sale and approximately $4,908.3 million of Loans serviced in connection
with securitization transactions. As of December 31, 1997, approximately 77.5%
of Arcadia Financial's servicing portfolio consisted of Loans secured by used
vehicles, of which approximately 33.0% were current model year at the time of
origination. As of December 31, 1997, Arcadia Financial had total assets of
approximately $845.8 million and shareholders' equity of approximately $347.9
million.
RECENT DEVELOPMENTS
On June 25, 1997, the United States District Court for the District of
Minnesota issued an order consolidating five separate shareholder suits against
Arcadia Financial and certain named directors and officers of Arcadia Financial
into one action, In re Olympic Financial Ltd. Securities Litigation. Each action
contains substantially the same allegations. Plaintiffs in the consolidated
action allege that during the period from July 20, 1995 through March 3, 1997
the defendants, in violation of federal securities laws, engaged in a scheme
that had the effect of artificially inflating, maintaining and otherwise
manipulating the value of Arcadia Financial's Common Stock by, among other
things, making baseless, false and misleading statements about the current state
and future prospects of Arcadia Financial, particularly with respect to the
Classic program and the refinancing of repossessed automobiles. Plaintiffs
allege that this scheme included making false and misleading statements and/or
concealing material adverse facts. Arcadia Financial has reviewed the complaint
in the consolidated action and believes that the consolidated action is without
merit and intends to defend it vigorously. There can, however, be no assurance
that Arcadia Financial will prevail in such defense or that any order, judgment,
settlement or decree arising out of this litigation will not have a material
adverse effect on Arcadia Financial's financial condition, results of operations
or liquidity.
FINANCIAL SECURITY ASSURANCE INC.
The following information has been obtained from Financial Security and has
not been verified by the Seller, Arcadia Financial or the Underwriters. No
representation or warranty is made by the Seller, Arcadia Financial or the
Underwriters with respect thereto.
GENERAL
Financial Security is a monoline insurance company incorporated in 1984
under the laws of the State of New York. Financial Security is licensed to
engage in the financial guaranty insurance business in all 50 states, the
District of Columbia and Puerto Rico.
Financial Security and its subsidiaries are engaged in the business of
writing financial guaranty insurance, principally in respect of securities
offered in domestic and foreign markets. In general, financial guaranty
insurance consists of the issuance of a guaranty of scheduled payments of an
issuer's securities-- thereby enhancing the credit rating of those
securities--in consideration for the payment of a premium to the insurer.
Financial Security and its subsidiaries principally insure asset-backed,
collateralized and municipal securities. Asset-backed securities are generally
supported by residential mortgage loans, consumer or trade receivables,
securities or other assets having an ascertainable cash flow or market value.
Collateralized securities include public utility first mortgage bonds and
sale/leaseback obligation bonds. Municipal securities consist largely of general
obligation bonds, special revenue bonds and other special obligations of state
and local governments. Financial Security insures both newly issued securities
sold in
S-24
<PAGE>
the primary market and outstanding securities sold in the secondary market that
satisfy Financial Security's underwriting criteria.
Financial Security is a wholly owned subsidiary of Financial Security
Assurance Holdings Ltd. ("Holdings"), a New York Stock Exchange listed company.
Major shareholders of Holdings include Fund American Enterprises Holdings, Inc.,
U S WEST Capital Corporation and The Tokio Marine and Fire Insurance Co., Ltd.
No shareholder of Holdings is obligated to pay any debt of Financial Security or
any claim under any insurance policy issued by Financial Security or to make any
additional contribution to the capital of Financial Security.
The principal executive offices of Financial Security are located at 350
Park Avenue, New York, New York 10022, and its telephone number at that location
is (212) 826-0100.
REINSURANCE
Pursuant to an intercompany agreement, liabilities on financial guaranty
insurance written or reinsured from third parties by Financial Security or any
of its domestic operating insurance company subsidiaries are reinsured among
such companies on an agreed-upon percentage substantially proportional to their
respective capital, surplus and reserves, subject to applicable statutory risk
limitations. In addition, Financial Security reinsures a portion of its
liabilities under certain of its financial guaranty insurance policies with
other reinsurers under various quota share treaties and on a
transaction-by-transaction basis. Such reinsurance is utilized by Financial
Security as a risk management device and to comply with certain statutory and
rating agency requirements; it does not alter or limit Financial Security's
obligations under any financial guaranty insurance policy.
RATING OF CLAIMS-PAYING ABILITY
Financial Security's claims-paying ability is rated Aaa by Moody's and AAA
by S&P, Fitch IBCA, Inc., Nippon Investors Service Inc. and Standard & Poor's
(Australia) Pty. Ltd. Such ratings reflect only the views of the respective
rating agencies, are not recommendations to buy, sell or hold securities and are
subject to revision or withdrawal at any time by such rating agencies. See "Risk
Factors-Ratings on Notes" herein.
CAPITALIZATION
The following table sets forth the capitalization of Financial Security and
its wholly owned subsidiaries on the basis of generally accepted accounting
principles as of September 30, 1997 (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------
(UNAUDITED)
<S> <C>
Deferred Premium Revenue
(net of prepaid reinsurance premiums)............................................. $ 402,891
------------------
Shareholder's Equity:
Common Stock...................................................................... 15,000
Additional Paid-In Capital........................................................ 646,620
Unrealized Gain on Investments (net of deferred income taxes)..................... 20,808
Accumulated Earnings.............................................................. 212,033
------------------
Total Shareholder's Equity.......................................................... 894,461
------------------
Total Deferred Premium Revenue
and Shareholder's Equity.......................................................... $ 1,297,352
------------------
------------------
</TABLE>
S-25
<PAGE>
For further information concerning Financial Security, see the Consolidated
Financial Statements of Financial Security and Subsidiaries, and the notes
thereto, incorporated by reference herein. The New York State Insurance
Department recognizes only statutory accounting practices for determining and
reporting the financial condition and results of operations of an insurance
company, for determining its solvency under the New York Insurance Law, and for
determining whether its financial condition warrants the payment of a dividend
to its stockholders. No consideration is given by the New York State Insurance
Department to financial statements prepared in accordance with generally
accepted accounting principles in making such determinations. Copies of the
statutory quarterly and annual statements filed with the State of New York
Insurance Department by Financial Security are available upon request to the
State of New York Insurance Department.
INSURANCE REGULATION
Financial Security is licensed and subject to regulation as a financial
guaranty insurance corporation under the laws of the State of New York, its
state of domicile. In addition, Financial Security and its insurance
subsidiaries are subject to regulation by insurance laws of the various other
jurisdictions in which they are licensed to do business. As a financial guaranty
insurance corporation licensed to do business in the State of New York,
Financial Security is subject to Article 69 of the New York Insurance Law which,
among other things, limits the business of each such insurer to financial
guaranty insurance and related lines, requires that each such insurer maintain a
minimum surplus to policyholders, establishes contingency, loss and unearned
premium reserve requirements for each such insurer, and limits the size of
individual transactions ("single risks") and the volume of transactions
("aggregate risks") that may be underwritten by each such insurer. Other
provisions of the New York Insurance Law, applicable to non-life insurance
companies such as Financial Security, regulate, among other things, permitted
investments, payment of dividends, transactions with affiliates, mergers,
consolidations, acquisitions or sales of assets and incurrence of liability for
borrowings.
The Note Policy is not covered by the Property/Casualty Insurance Security
Fund specified in Article 76 of the New York Insurance Law.
S-26
<PAGE>
DESCRIPTION OF THE NOTES
GENERAL
The Notes will be issued pursuant to the terms of the Indenture, a form of
which has been filed as an exhibit to the Registration Statement. A copy of the
Indenture will be filed with the Commission following the issuance of the Notes.
The following summary describes certain terms of the Notes and the Indenture.
The summary does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all the provisions of the Notes and the
Indenture. The following summary supplements the description of the general
terms and provisions of the Notes of any given series and the related Indenture
set forth in the accompanying Prospectus, to which description reference is
hereby made. Norwest Bank Minnesota, National Association, a national banking
association headquartered in Minneapolis Minnesota, will be the Indenture
Trustee.
PAYMENTS OF INTEREST
Interest on the principal balance of each class of Notes will accrue at the
applicable Interest Rate and will be payable to the Noteholders of such class
monthly on each Distribution Date, commencing April 15, 1998. Interest will
accrue from and including March 25, 1998 (in the case of the first Distribution
Date) or from and including the most recent Distribution Date on which interest
has been paid to but excluding April 15, 1998 (in the case of the first
Distribution Date) or to but excluding the following Distribution Date (each, an
"Interest Period"). Interest on the Class A-1 and the Class A-2 Notes will be
calculated on the basis of the actual number of days elapsed during the
applicable Interest Period divided by 360. Interest on the Class A-3 Notes, the
Class A-4 Notes and the Class A-5 Notes for each Interest Period will be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
Interest accrued as of any Distribution Date but not paid on such Distribution
Date will be due on the next Distribution Date, together with interest on such
amount at the applicable Interest Rate (to the extent lawful). Interest payments
on the Notes will be made from Available Funds (as defined herein) after
reimbursement of the Servicer for prior Monthly Advances, payment of accrued and
unpaid trustees' fees and other administrative fees of the Trust and payment of
the Servicing Fee. See "Description of the Purchase Agreements and the Trust
Documents--Distributions" herein.
PAYMENTS OF PRINCIPAL
Principal payments will be made to the Noteholders on each Distribution Date
in an amount equal to the sum of the following amounts with respect to the
related Monthly Period: (i) that portion of all collections on Receivables
(other than Liquidated Receivables and Purchased Receivables) allocable to
principal, including full and partial principal prepayments, received during
such Monthly Period, (ii) the principal balance of each Receivable that became a
Liquidated Receivable during such Monthly Period, (iii) the principal balance of
each Receivable that was repurchased by Arcadia Financial or the Servicer as of
the last day of such Monthly Period, and, at the option of Financial Security,
the principal balance of each Receivable that was required to be, but was not,
so repurchased, (iv) the aggregate amount of any reduction of the principal
balance of a Receivable as a result of a court order in an insolvency proceeding
and (v) any unpaid portion of the amounts included in clauses (i), (ii), (iii)
and (iv) above with respect to a prior Distribution Date. Principal payments on
the Notes will be made from Available Funds after reimbursement of the Servicer
for prior Monthly Advances, payment of accrued and unpaid trustees' fees and
other administrative fees of the Trust, payment of the Servicing Fee and after
distribution of the Noteholders' Interest Distributable Amount. See "Description
of the Purchase Agreements and the Trust Documents--Distributions" herein.
Principal payments on the Notes will be applied on each Distribution Date,
first, to the principal balance of the Class A-1 Notes until such principal
balance is reduced to zero, then to the principal balance of the Class A-2 Notes
until such principal balance is reduced to zero, then to the principal balance
of the Class A-3 Notes until such principal balance is reduced to zero, then to
the principal balance of the
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<PAGE>
Class A-4 Notes until such principal balance is reduced to zero and then to the
principal balance of the Class A-5 Notes until such principal balance is reduced
to zero. The principal balance of the Class A-1 Notes, to the extent not
previously paid, will be due on the Class A-1 Final Scheduled Distribution Date,
the principal balance of the Class A-2 Notes, to the extent not previously paid,
will be due on the Class A-2 Final Scheduled Distribution Date, the principal
balance of the Class A-3 Notes, to the extent not previously paid, will be due
on the Class A-3 Final Scheduled Distribution Date, and the principal balance of
the Class A-4 Notes, to the extent not previously paid, will be due on the Class
A-4 Final Scheduled Distribution Date and the principal balance of the Class A-5
Notes, to the extent not previously paid, will be due on the Class A-5 Final
Scheduled Distribution Date. The actual date on which the aggregate outstanding
principal amount of any class of Notes is paid may be earlier than the Final
Scheduled Distribution Date for such class, depending on a variety of factors.
MANDATORY REDEMPTION
Each class of Notes will be redeemed in part on the Distribution Date on or
immediately following the last day of the Funding Period in the event that any
portion of the Pre-Funded Amount remains on deposit in the Pre-Funding Account
after giving effect to the purchase of all Subsequent Receivables, including any
such purchase on such date (a "Mandatory Redemption"). The aggregate principal
amount of each class of Notes to be redeemed will be an amount equal to such
class's pro rata share (based on the respective current principal balance of
each class of Notes) of the remaining Pre-Funded Amount on such date (such
class's "Note Prepayment Amount").
A Note Prepayment Premium will be payable by the Trust to the Noteholders of
each class if the Pre-Funded Amount at the end of the Funding Period exceeds
$100,000. The Note Prepayment Premium for a class of Notes will equal the
excess, if any, discounted as described below, of (i) the amount of interest
that would have accrued on such class's Note Prepayment Amount at the Interest
Rate borne by such class of Notes during the period commencing on and including
the Distribution Date on which such class's Note Prepayment Amount is required
to be distributed to the Noteholders of such class to but excluding June 23,
1998 in the case of the Class A-1 Notes, March 20, 1999 in the case of the Class
A-2 Notes, May 15, 2000 in the case of the Class A-3 Notes, July 31, 2001 in the
case of the Class A-4 Notes and February 28, 2002 in the case of the Class A-5
Notes, over (ii) the amount of interest that would have accrued on such class's
Note Prepayment Amount over the same period at a per annum rate of interest
equal to the bond equivalent yield to maturity on the Determination Date
preceding such Distribution Date at 3 month LIBOR, in the case of the Class A-1
Notes, at 12 month LIBOR, in the case of the Class A-2 Notes, on the 6.375%
United States Treasury Note due May 15, 2000, in the case of the Class A-3
Notes, the 6.625% United States Treasury Note due July 31, 2001, in the case of
the Class A-4 Notes and the 6.250% United States Treasury Note due February 28,
2002, in the case of the Class A-5 Notes. Such excess shall be discounted to
present value to such Distribution Date at the applicable yield described in
clause (ii) above. The Trust's obligation to pay the Note Prepayment Premiums
shall be limited to funds which are received from the Seller under the Sale and
Servicing Agreement as liquidated damages for the failure to deliver Subsequent
Receivables. No other assets of the Trust will be available for the purpose of
making such payment. The Note Policy does not guarantee payment of the Note
Prepayment Premiums or the Note Prepayment Amounts, although the Note Policy
does guarantee payment of the Noteholders' Interest Distributable Amount and the
Noteholders' Principal Distributable Amount with respect to each class of Notes
on its respective Final Scheduled Distribution Date. In addition, the ratings
assigned to the Notes by the Rating Agencies do not address the likelihood that
the Note Prepayment Amounts or the Note Prepayment Premiums will be paid.
OPTIONAL REDEMPTION
The Class A-5 Notes, to the extent still outstanding, may be redeemed in
whole, but not in part, on any Distribution Date on which the Seller or the
Servicer exercises its option to purchase the Receivables. The Seller or the
Servicer may purchase the Receivables when the Aggregate Principal Balance has
declined to
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10% or less of the Original Pool Balance, as described in the accompanying
Prospectus under "Description of the Purchase Agreements and the Trust
Documents--Termination." Such redemption will effect early retirement of the
Class A-5 Notes. The redemption price will be equal to the unpaid principal
amount of the Class A-5 Notes of each such class, plus accrued and unpaid
interest thereon (the "Redemption Price").
EVENTS OF DEFAULT
Unless an Insurer Default shall have occurred and be continuing, "Events of
Default" under the Indenture will consist of those events defined in the
Insurance Agreement as Insurance Agreement Indenture Cross Defaults, and will
constitute an Event of Default under the Indenture only if Financial Security
shall have delivered to the Trust and the Indenture Trustee, and not rescinded,
a written notice specifying that any such Insurance Agreement Indenture Cross
Default constitutes an Event of Default under the Indenture. "Insurance
Agreement Indenture Cross Defaults" consist of: (i) a demand for payment being
made under the Note Policy; (ii) certain events of bankruptcy, insolvency,
receivership or liquidation of the Trust; (iii) the Trust becoming taxable as an
association (or publicly traded partnership) taxable as a corporation for
federal or state income tax purposes; (iv) on any Distribution Date, the sum of
the Available Funds with respect to such Distribution Date plus the amount (if
any) on deposit in the Reserve Account and certain funds held by the Collateral
Agent being less than the sum of the amounts described in clauses 1-6 under
"Description of the Purchase Agreements and the Trust Documents-Distributions"
herein; and (v) any failure to observe or perform in any material respect any
other covenants or agreements in the Indenture, or any representation or
warranty of the Trust made in the Indenture or in any certificate or other
writing delivered pursuant thereto or in connection therewith proving to have
been incorrect in any material respect when made, and such failure continuing or
not being cured, or the circumstance or condition in respect of which such
misrepresentation or warranty was incorrect not having been eliminated or
otherwise cured, for 30 days after the giving of written notice of such failure
or incorrect representation or warranty to the Trust and the Indenture Trustee
by Financial Security.
Upon the occurrence of an Event of Default, so long as an Insurer Default
shall not have occurred and be continuing, Financial Security shall have the
right, but not the obligation, to cause the Indenture Collateral Agent to
liquidate the Trust Property in whole or in part, on any date or dates following
the acceleration of the Notes due to such Event of Default as Financial
Security, in its sole discretion, shall elect, and to deliver the proceeds of
such liquidation to the Indenture Trustee for distribution in accordance with
the terms of the Indenture. Financial Security may not, however, cause the
Indenture Collateral Agent to liquidate the Trust Property in whole or in part
if the proceeds of such liquidation would not be sufficient to pay all
outstanding principal of and accrued interest on the Notes, unless such Event of
Default arose from a claim being made on the Note Policy or from certain events
of bankruptcy, insolvency, receivership or liquidation of the Trust. Following
the occurrence of any Event of Default, the Indenture Trustee and the Owner
Trustee will continue to submit claims under the Note Policy for any shortfalls
in the Scheduled Payments on the Notes. Following any Event of Default under the
Indenture, Financial Security may elect to pay all or any portion of the
outstanding amount of the Notes, plus accrued interest thereon. See "The Note
Policy" herein.
If an Insurer Default has occurred and is continuing, "Events of Default"
under the Indenture will consist of the Events of Default described in the
accompanying Prospectus under "The Notes-The Indenture," and the Indenture
Trustee and the Noteholders will have the rights under the Indenture described
therein.
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<PAGE>
DESCRIPTION OF THE PURCHASE AGREEMENTS AND THE TRUST DOCUMENTS
The following summary describes certain terms of the Purchase Agreements and
any Subsequent Purchase Agreement (together, the "Purchase Agreements"), and the
Sale and Servicing Agreement, any Subsequent Transfer Agreement and the Trust
Agreement (together, the "Trust Documents"). Forms of the Purchase Agreements
and the Trust Documents have been filed as exhibits to the Registration
Statement. A copy of the Purchase Agreements and the Trust Documents will be
filed with the Commission following the issuance of the Notes. The summary does
not purport to be complete and is subject to, and qualified in its entirety by
reference to, all the provisions of the Purchase Agreements and the Trust
Documents. The following summary supplements the description of the general
terms and provisions of Purchase Agreements and the Trust Documents (as such
terms are used in the accompanying Prospectus) set forth in the accompanying
Prospectus, to which description reference is hereby made.
The Sale and Servicing Agreement will not permit modifications of
Receivables to avoid prepayments by Obligors. See "Description of the Purchase
Agreements and the Trust Documents-Servicing Procedures" in the accompanying
Prospectus.
SALE AND ASSIGNMENT OF RECEIVABLES; SUBSEQUENT RECEIVABLES
Certain information with respect to the sale of the Initial Receivables by
Arcadia Financial to the Seller pursuant to the Purchase Agreements and the
conveyance of the Initial Receivables from the Seller to the Trust on the
Closing Date pursuant to the Sale and Servicing Agreement is set forth under
"Description of the Purchase Agreements and the Trust Documents-Sale and
Assignment of Receivables" in the accompanying Prospectus. In addition, during
the Funding Period, pursuant to the Sale and Servicing Agreement, the Seller
will be obligated to sell to the Trust Subsequent Receivables having an
aggregate principal balance equal to approximately $157,500,000 (such amount
being equal to the initial Pre-Funded Amount) to the extent that such Subsequent
Receivables are available.
During the Funding Period, on each Subsequent Transfer Date, subject to the
conditions described below, the Seller will sell and assign to the Trust,
without recourse, the Seller's entire interest in the Subsequent Receivables
designated by the Seller as of the related Subsequent Cutoff Date and identified
in a schedule attached to a Subsequent Transfer Agreement relating to such
Subsequent Receivables executed on such date by the Seller. Upon the conveyance
of Subsequent Receivables to the Trust on a Subsequent Transfer Date, (i) the
Aggregate Principal Balance will increase in an amount equal to the aggregate
principal balances of the Subsequent Receivables, (ii) the Class A-1 Holdback
Amount (described under "-Accounts" below), if any, for such Subsequent Transfer
Date will be withdrawn from the Pre-Funding Account and deposited in the Class
A-1 Holdback Subaccount (described under "-Accounts" below), and (iii) an amount
equal to the aggregate principal balances of such Subsequent Receivables less
the Class A-1 Holdback Amount will be withdrawn from the Pre-Funding Account and
paid to or upon the order of the Seller.
Any conveyance of Subsequent Receivables is subject to the satisfaction, on
or before the related Subsequent Transfer Date, of the following conditions,
among others: (i) each such Subsequent Receivable satisfies the eligibility
criteria specified in the Sale and Servicing Agreement; (ii) Financial Security
(so long as no Insurer Default shall have occurred and be continuing) shall in
its absolute and sole discretion have approved the transfer of such Subsequent
Receivables to the Trust; (iii) as of each applicable Subsequent Cutoff Date,
the Receivables in the Trust together with the Subsequent Receivables to be
conveyed by the Seller as of such Subsequent Cutoff Date, meet the following
criteria (computed based on the characteristics of the Initial Receivables on
the Initial Cutoff Date and any Subsequent Receivables on the related Subsequent
Cutoff Date): (a) the weighted average APR of such Receivables will not be less
than one percent less than the weighted average APR of the Preliminary Initial
Receivables on the Preliminary Cutoff Date, (b) the weighted average remaining
term of such Receivables will not be greater than 67 months nor less than 63
months, (c) not more than 90% of the principal balances of such Receivables will
be
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attributable to Loans for the purchase of used Financed Vehicles, (d) not more
than 66% of the Aggregate Principal Balance of such Receivables will represent
Receivables originated under Arcadia Financial's "Classic" program and (e) not
more than 4% of the principal balances of such Receivables will have an APR in
excess of 21%, and the Trust, the Indenture Trustee, the Owner Trustee and
Financial Security shall have received written confirmation from a firm of
certified independent public accountants as to the satisfaction of the criteria
in clauses (a) through (e) above; (iv) the Seller shall have executed and
delivered to the Trust (with a copy to the Indenture Trustee) a Subsequent
Transfer Agreement conveying such Subsequent Receivables to the Trust (including
a schedule identifying such Subsequent Receivables); (v) the Class A-1 Holdback
Amount, if any, shall have been deposited in the Class A-1 Holdback Subaccount
(described under "-Accounts" below); (vi) the Seller shall have delivered
certain opinions of counsel to the Indenture Trustee, the Owner Trustee,
Financial Security and the Rating Agencies with respect to the validity of the
conveyance of such Subsequent Receivables; and (vii) the Rating Agencies shall
have each notified the Seller, the Owner Trustee, the Indenture Trustee and
Financial Security in writing that, following the addition of all such
Subsequent Receivables, the Class A-1 Notes will be rated A-1+ by S&P and P-1 by
Moody's, and the Class A-2 Notes, the Class A-3 Notes, the Class A-4 Notes and
the Class A-5 Notes will be rated AAA by S&P and Aaa by Moody's.
Subsequent Receivables may have been originated by Arcadia Financial at a
later date using credit criteria different from the criteria applied with
respect to the Initial Receivables. See "Risk Factors-The Receivables and the
Pre-Funding Account" and "The Receivables Pool" herein.
ACCOUNTS
The Servicer will establish and maintain one or more accounts, in the name
of the Indenture Trustee on behalf of the Noteholders, into which all payments
made on or with respect to the Receivables will be deposited (the "Collection
Account"). The Servicer will also establish and maintain an account, in the name
of the Indenture Trustee on behalf of the Noteholders, in which amounts released
from the Collection Amount for distribution to Noteholders will be deposited and
from which all distributions to Noteholders will be made (the "Note Distribution
Account"). The Collection Account and the Note Distribution Account are
collectively referred to herein as the "Designated Accounts." See "Description
of the Purchase Agreements and the Trust Documents-Collections" in the
accompanying Prospectus.
In addition to the Designated Accounts, the Servicer will also establish and
will maintain the Pre-Funding Account in the name of the Indenture Trustee on
behalf of the Noteholders.
The Servicer will also establish and maintain an account (the "Reserve
Account") in the name of the Indenture Trustee on behalf of the Noteholders. On
the Closing Date, the Seller will deposit an amount equal to the Requisite
Reserve Amount (as described below) as of the Closing Date in the Reserve
Account. On each Draw Date (as described below) during the Funding Period, if
the Available Funds are insufficient to distribute the amounts described in
clauses 1-6 under "-Distributions" below, the Indenture Trustee will withdraw
from the Reserve Account the amount of such shortfall (but in no event more than
the difference between (i) the amount on deposit in the Reserve Account and (ii)
the Requisite Reserve Amount for the related Distribution Date), and deposit
such amount in the Collection Account. On each Subsequent Transfer Date, the
Servicer will recalculate the Requisite Reserve Amount, and any funds in the
Reserve Account in excess of such amount will be distributed to the Seller. If
the amount in the Reserve Account on such Subsequent Transfer Date is less than
the Requisite Reserve Amount, such amount will be transferred to the Reserve
Account from the funds that would otherwise be paid to the Seller from the
Pre-Funding Account.
The "Requisite Reserve Amount" as of any date during the Funding Period will
equal the product of (i) the difference between (A) the weighted average of the
Interest Rates for each class of Notes (based on the outstanding principal
amount of each class of Notes on such date) and (B) the assumed yield (2.5% per
annum) of investments of funds in the Pre-Funding Account, divided by 360, (ii)
the Pre-Funded Amount on such date and (iii) the number of days remaining until
the Distribution Date in May 1998.
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In addition, on any Subsequent Transfer Date a "Class A-1 Holdback Amount"
(as defined in the Sale and Servicing Agreement, and determined by the amount,
if any, by which the actual Principal Balance of Subsequent Receivables
transferred to the Trust on or prior to such date is less than the amount set
forth in a schedule of assumed amounts), if any, will be withheld from funds in
the Pre-Funding Account that would otherwise be paid to the Seller on such
Subsequent Transfer Date and will be deposited into a subaccount (the "Class A-1
Holdback Subaccount") of the Reserve Account. The Class A-1 Holdback Subaccount
is intended to ensure that, notwithstanding a slower than expected delivery of
Subsequent Receivables by the Seller during the Funding Period, sufficient funds
will be available to retire the Class A-1 Notes on the Class A-1 Final Scheduled
Distribution Date. Any funds in the Class A-1 Holdback Subaccount (less the
amount, if any, required to be applied to reduce the principal balance of the
Class A-1 Notes to zero on the Class A-1 Final Scheduled Distribution Date) will
be released to the Seller on the Distribution Date on which the Class A-1 Notes
are paid in full, and funds in the Class A-1 Holdback Subaccount will not be
available for any other purpose.
Funds in the Designated Accounts, the Pre-Funding Account and the Reserve
Account will be invested in Eligible Investments, and investment earnings will
be added to Available Funds on each Distribution Date.
DISTRIBUTIONS
On or before the sixth Business Day prior to each Distribution Date (each
such date, a "Determination Date"), the Servicer will deliver to the Indenture
Trustee, the Owner Trustee, Financial Security and each Rating Agency a
certificate (the "Servicer's Certificate") setting forth, among other things,
the following amounts with respect to the preceding Monthly Period and the
related Distribution Date: (i) the amount of funds in the Collection Account
allocable to collections on the Receivables in the preceding Monthly Period
(excluding any Monthly Advances and any Purchase Amounts) (the "Collected
Funds"); (ii) the Purchase Amount of all Receivables repurchased by Arcadia
Financial or the Servicer as of the related Deposit Date; (iii) the Monthly
Advances made by the Servicer and the amounts which the Servicer is entitled to
be reimbursed for prior Monthly Advances; (iv) the amount of Available Funds;
(v) the Noteholders' Interest Distributable Amount; (vi) the Noteholders'
Principal Distributable Amount; and (vii) the Servicing Fee.
On each Distribution Date, the Servicer shall instruct the Indenture Trustee
to distribute the Available Funds in the following order of priority:
1. To the Servicer, the amount the Servicer is entitled to be
reimbursed for prior Monthly Advances.
2. To the Indenture Trustee and the Owner Trustee, any accrued and
unpaid trustees' fees and any accrued and unpaid fees of the separate
Lockbox Bank, Custodian, Backup Servicer, Indenture Collateral Agent,
Administrator or Collateral Agent (described below) (in each case, to the
extent such fees have not been previously paid by the Servicer or Arcadia
Financial).
3. To the Servicer, the Servicing Fee for the related Monthly Period.
4. To the Note Distribution Account, the Noteholders' Interest
Distributable Amount.
5. To the Note Distribution Account, the Noteholders' Principal
Distributable Amount, to be distributed first to the Class A-1 Noteholders
in reduction of principal until the principal balance of the Class A-1 Notes
has been reduced to zero, then to the Class A-2 Noteholders in reduction of
principal until the principal balance of the Class A-2 Notes has been
reduced to zero, then to the Class A-3 Noteholders in reduction of principal
until the principal balance of the Class A-3 Notes has been reduced to zero,
then to the Class A-4 Noteholders in reduction of principal until the
principal balance of the Class A-4 Notes has been reduced to zero and then
to the Class A-5 Noteholders in reduction of principal until the principal
balance of the Class A-5 Notes has been reduced to zero.
6. To Financial Security, any amounts owing to Financial Security under
the Insurance Agreement and not paid.
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7. Any Available Funds remaining in the Collection Account after
distributing the amounts described above will be payable to the Seller as
compensation for obtaining the Note Policy, paying the premiums thereon and
maintaining all necessary related arrangements for the benefit of Financial
Security (such compensation, including amounts paid to Financial Security
described above, being hereinafter referred to as the "Credit Enhancement
Fee"), but shall be transferred to a financial institution acting as
collateral agent (the "Collateral Agent") on behalf of Financial Security,
the Indenture Trustee and the Owner Trustee and the trustees for other
trusts and warehousing facilities established and to be established by the
Seller. Unless an Insurer Default has occurred and is continuing, Financial
Security will control the disposition of any funds held by the Collateral
Agent.
If the Notes are accelerated following an Event of Default under the
Indenture, amounts collected will be distributed in the order described above.
The following sets forth an example of the application of the foregoing to a
hypothetical monthly distribution:
<TABLE>
<S> <C>
March 1--March 31....................... MONTHLY PERIOD. Scheduled Payments and any prepayments and
other collections on the Receivables are received and
deposited into the Collection Account.
April 6................................. DEPOSIT DATE. On or before this date, Arcadia Financial and
the Servicer will make required payments of Purchase Amounts
to the Collection Account.
April 7................................. DETERMINATION DATE. On or before this date the Servicer will
deposit all Monthly Advances and notify the Indenture
Trustee of, among other things, the amounts available in the
Collection Account and the amounts required to be
distributed on the Distribution Date.
April 10................................ DRAW DATE. On this date, the Indenture Trustee will withdraw
funds, if necessary, from the Reserve Account (during the
Funding Period and subject to the limitation described under
"-Accounts") and deposit such funds in the Collection
Account. In addition, the Indenture Trustee will make any
required claims under the Note Policy if the funds in the
Note Distribution Account (plus any amounts deposited
therein by the Collateral Agent) are insufficient to pay in
full the Noteholders' Distributable Amount.
April 14................................ RECORD DATE. Distributions on the Distribution Date will be
made to Noteholders of record at the close of business on
this date.
April 15................................ DISTRIBUTION DATE. The Indenture Trustee will reimburse the
Servicer for prior Monthly Advances, pay all accrued and
unpaid trustees' fees and other administrative fees of the
Trust, pay the Servicing Fee and distribute to Noteholders
all amounts in the Note Distribution Account. The Indenture
Trustee will pay any amounts owing to Financial Security and
will transfer the Credit Enhancement Fee to the Collateral
Agent.
</TABLE>
For the purposes hereof, the following terms shall have the following
meanings:
"AVAILABLE FUNDS" means, with respect to any Distribution Date, the sum of
the Collected Funds, any Purchase Amounts, all Monthly Advances and all earnings
from the investment of funds in the Collection Account, the Pre-Funding Account
and the Reserve Account during the Monthly Period.
"LIQUIDATED RECEIVABLE" means a Receivable as to which (i) 91 days have
elapsed since the Servicer repossessed the related Financed Vehicle, (ii) the
Servicer has determined in good faith that all amounts it expects to recover
have been received or (iii) all or some portion of a Scheduled Payment has
become more than 180 days past due.
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"NOTEHOLDERS' DISTRIBUTABLE AMOUNT" means, with respect to any Distribution
Date, the sum of the Noteholders' Principal Distributable Amount and the
Noteholders' Interest Distributable Amount.
"NOTEHOLDERS' INTEREST CARRYOVER SHORTFALL" means, with respect to any
Distribution Date and a class of Notes, the excess of the Noteholders' Interest
Distributable Amount for such class for the preceding Distribution Date, over
the amount in respect of interest that was actually deposited in the Note
Distribution Account with respect to such class on such preceding Distribution
Date, plus interest on the amount of interest due but not paid to Noteholders of
such class on the preceding Distribution Date, to the extent permitted by law,
at the Interest Rate borne by such class of Notes from such preceding
Distribution Date to but excluding the current Distribution Date.
"NOTEHOLDERS' INTEREST DISTRIBUTABLE AMOUNT" means, with respect to any
Distribution Date, the sum of the Noteholders' Monthly Interest Distributable
Amount for each class of Notes for such Distribution Date and the Noteholders'
Interest Carryover Shortfall for each class of Notes for such Distribution Date.
"NOTEHOLDERS' MONTHLY INTEREST DISTRIBUTABLE AMOUNT" means, with respect to
any Distribution Date, the sum of the interest amounts payable on each class of
Notes. The interest amounts payable with respect to the Class A-1 Notes and the
Class A-2 Notes shall equal the product of the outstanding principal balance of
such class and the Interest Rate on such class multiplied by a fraction whose
numerator is the actual number of days in the Interest Period and whose
denominator is 360. The interest amounts payable with respect to the Class A-3
Notes, the Class A-4 Notes and the Class A-5 Notes shall equal the product of
the outstanding principal balance of such class and the Interest Rate on such
class multiplied by a fraction whose numerator is the number of days in the
Interest Period (assuming each month is composed of 30 days) and whose
denominator is 360. The outstanding principal balance for each Interest Period
is measured as of the preceding Distribution Date (after giving effect to all
payments of principal to the Noteholders on or prior to such Distribution Date)
or, in the case of the initial Interest Period, as of the Closing Date.
"NOTEHOLDERS' MONTHLY PRINCIPAL DISTRIBUTABLE AMOUNT" means, with respect to
any Distribution Date, 100% of the Principal Distribution Amount.
"NOTEHOLDERS' PRINCIPAL CARRYOVER SHORTFALL" means, as of the close of any
Distribution Date, the excess of the Noteholders' Principal Distributable Amount
for the preceding Distribution Date over the amount in respect of principal that
was actually deposited in the Note Distribution Account on such Distribution
Date.
"NOTEHOLDERS' PRINCIPAL DISTRIBUTABLE AMOUNT" means, with respect to any
Distribution Date (other than the Final Scheduled Distribution Date for any
class of Notes), the sum of the Noteholders' Monthly Principal Distributable
Amount for such Distribution Date and the Noteholders' Principal Carryover
Shortfall as of the close of the preceding Distribution Date. The Noteholders'
Principal Distributable Amount on the Final Scheduled Distribution Date for any
class of Notes will equal the sum of (i) the Noteholders' Monthly Principal
Distributable Amount for such Distribution Date, (ii) the Noteholders' Principal
Carryover Shortfall as of the close of the preceding Distribution Date, and
(iii) the excess of the outstanding principal balance of such class of Notes, if
any, over the amounts described in clauses (i) and (ii).
"PRINCIPAL DISTRIBUTION AMOUNT" means, with respect to any Distribution
Date, the amount equal to the sum of the following amounts with respect to the
related Monthly Period: (i) that portion of all collections on Receivables
(other than Liquidated Receivables and Purchased Receivables) allocable to
principal, including all full and partial prepayments received during such
Monthly Period, (ii) the aggregate unpaid principal balance of all Receivables
(other than the Purchased Receivables) that became Liquidated Receivables during
the Monthly Period, (iii) the aggregate principal balances of all Receivables
that became Purchased Receivables as of the last day of the prior Monthly
Period, and, at the option of Financial Security, the principal balance of each
Receivable that was required to be, but was not, so repurchased and (iv) the
aggregate amount of any reductions in the principal balance of Receivables as a
result of a court order in an insolvency proceeding.
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<PAGE>
"PURCHASED RECEIVABLE" means a Receivable (i)(A) that Arcadia Financial or
the Seller has become obligated to repurchase (or, under certain circumstances,
has elected to repurchase) as a result of an uncured breach by Arcadia Financial
or the Seller of a representation or warranty made by Arcadia Financial or the
Seller with respect to such Receivable or (B) that the Servicer has become
obligated to repurchase (or, under certain circumstances, has elected to
repurchase) as a result of an uncured breach of the covenants made by it with
respect to such Receivable and (ii) as to which the related Purchase Amount has
been deposited in the Collection Account by Arcadia Financial, the Seller or the
Servicer, as the case may be, on or before the related Deposit Date.
STATEMENTS TO NOTEHOLDERS
On or prior to each Distribution Date, the Servicer will prepare and provide
to the Indenture Trustee a statement to be delivered to the Noteholders on such
Distribution Date. Such statement will be based on the information in the
related Servicer's Certificate setting forth certain information required under
the Trust Documents. Each such statement to be delivered to Noteholders will
include the following information as to the Notes, with respect to such
Distribution Date or the period since the previous Distribution Date, as
applicable:
(i) the amount of the distribution allocable to interest on or with
respect to the Notes;
(ii) the amount of the distribution allocable to principal on or with
respect to the Notes;
(iii) the amount of the distribution payable pursuant to a claim on the
Note Policy or out of amounts on deposit with the Collateral Agent;
(iv) the aggregate outstanding principal balance and the Note Pool
Factor for each class of Notes after giving effect to all payments reported
under (ii) above on such date;
(v) the Noteholders' Interest Carryover Shortfall and the Noteholders'
Principal Carryover Shortfall, if any, and the change in such amounts from
the preceding statement;
(vi) the amount of the Servicing Fee paid to the Servicer with respect
to the related Monthly Period or Periods, as the case may be;
(vii) for each such date during the Funding Period, the remaining
Pre-Funded Amount, the amount in the Pre-Funding Account and the amount
remaining in the Reserve Account (including funds in the Class A-1 Holdback
Subaccount, if any), and all investment earnings on such funds; and
(viii) for the first such date that is on or immediately following the end
of the Funding Period, the amount of any remaining Pre-Funded Amount that
has not been used to fund the purchase of Subsequent Receivables and is
being passed through as payments of principal on the Notes.
Each amount set forth pursuant to subclauses (i) through (vi) with respect
to the Notes will be expressed as a dollar amount per $1,000 of the initial
principal amount of the Notes.
Unless and until Definitive Notes are issued, such reports will be sent on
behalf of the Trust to Cede & Co., as registered holder of the Notes and the
nominee of DTC. Note Owners may receive copies of such reports upon written
request, together with a certification that they are Note Owners and payment of
any expenses associated with the distribution of such reports, from the
Indenture Trustee. See "Reports to Noteholders" herein and "Reports to
Securityholders" and "Certain Information Regarding the Securities" in the
accompanying Prospectus.
Within the required period of time after the end of each calendar year, the
Indenture Trustee will furnish to each person who at any time during such
calendar year was a Noteholder, a statement as to the aggregate amounts of
interest and principal paid to such Noteholder, information regarding the amount
of servicing compensation received by the Servicer and such other information as
the Seller deems necessary to enable such Noteholder to prepare its tax returns.
See "Certain Federal Income Tax Consequences" herein.
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<PAGE>
THE NOTE POLICY
The following paragraphs summarize the material terms of the Note Policy.
This summary is qualified by reference to the provisions of the Note Policy, a
form of which has been filed as an exhibit to the Registration Statement of
which this Prospectus Supplement is a part.
Simultaneously with the issuance of the Notes, Financial Security will
deliver the Note Policy to the Indenture Trustee for the benefit of each
Noteholder. Under the Note Policy, Financial Security will unconditionally and
irrevocably guarantee to the Indenture Trustee for the benefit of each
Noteholder the full and complete payment of (i) Scheduled Payments (as defined
below) on the Notes and (ii) the amount of any Scheduled Payment which
subsequently is avoided in whole or in part as a preference payment under
applicable law. In the event the Indenture Trustee fails to make a claim under
the Note Policy, Noteholders do not have the right to make a claim directly
under the Note Policy, but may sue to compel the Indenture Trustee to do so.
"Scheduled Payments" means payments which are scheduled to be made on the
Notes during the term of the Note Policy in accordance with the original terms
of the Notes when issued and without regard to any subsequent amendment or
modification of the Notes or the Indenture that has not been consented to by
Financial Security, which payments are (i) the Noteholders' Interest
Distributable Amount and (ii) the Noteholders' Principal Distributable Amount;
Scheduled Payments do not include payments which become due on an accelerated
basis as a result of (a) a default by the Issuer, (b) an election by the Issuer
to pay principal on an accelerated basis, (c) the occurrence of an Event of
Default under the Indenture or (d) any other cause, unless Financial Security
elects, in its sole discretion, to pay in whole or in part such principal due
upon acceleration, together with any accrued interest to the date of
acceleration. In the event Financial Security does not so elect, the Note Policy
will continue to guarantee Scheduled Payments due on the Notes in accordance
with their original terms. Scheduled Payments shall not include (x) any portion
of a Noteholders' Interest Distributable Amount due to Noteholders because the
appropriate notice and certificate for payment in proper form was not timely
Received (as defined below) by Financial Security, (y) any portion of a
Noteholders' Interest Distributable Amount due to Noteholders representing
interest on any Noteholders' Interest Carryover Shortfall accrued from and
including the date of payment of the amount of such Noteholders' Interest
Carryover Shortfall pursuant to the Note Policy, or (z) any Note Prepayment
Amounts or any Note Prepayment Premiums, unless, in each case, Financial
Security elects, in its sole discretion, to pay such amount in whole or in part.
Scheduled Payments shall not include any amounts due in respect of the Notes
attributable to any increase in interest rates, penalties or other sums payable
by the Trust by reason of a default or Event of Default in respect of the Notes,
or by reason of a deterioration of the creditworthiness of the Trust, nor shall
Scheduled Payments include, nor shall coverage be provided under the Note Policy
in respect of, any taxes, withholding or other charges with respect to any
Noteholder imposed by any governmental authority due in connection with the
payment of any Scheduled Payments to a Noteholder.
Payment of claims on the Note Policy made in respect of Scheduled Payments
will be made by Financial Security following Receipt (as defined below) by
Financial Security of the appropriate notice for payment on the later to occur
of (i) 12:00 noon, New York City time, on the third Business Day following
Receipt of such notice for payment, and (ii) 12:00 noon, New York City time, on
the date on which such payment was due on the Notes.
If payment of any amount avoided as a preference under applicable
bankruptcy, insolvency, receivership or similar law is required to be made under
the Note Policy, Financial Security shall cause such payment to be made no
earlier than the first to occur of (a) the fourth Business Day following Receipt
by Financial Security from the Indenture Trustee of (i) a certified copy of the
order (the "Order") of the court or other governmental body which exercised
jurisdiction to the effect that the Noteholder is required to return principal
or interest paid on the Notes during the term of the Note Policy because such
payments
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<PAGE>
were avoidable as preference payments under applicable bankruptcy law, (ii) a
certificate of the Noteholder that the Order has been entered and is not subject
to any stay and (iii) an assignment duly executed and delivered by the
Noteholder, in such form as is reasonably required by Financial Security and
provided to the Noteholder by Financial Security, irrevocably assigning to
Financial Security all rights and claims of the Noteholder relating to or
arising under the Notes against the Trust or otherwise with respect to such
preference payment, or (b) the date of Receipt by Financial Security from the
Indenture Trustee of the items referred to in clauses (i), (ii) and (iii) above
if, at least four Business Days prior to such date of Receipt, Financial
Security shall have received written notice from the Indenture Trustee that such
items were to be delivered on such date and such date was specified in such
notice. Such payment shall be disbursed to the receiver, conservator,
debtor-in-possession or trustee in bankruptcy named in the Order and not to the
Indenture Trustee or any Noteholder directly (unless a Noteholder has previously
paid such amount to the receiver, conservator, debtor-in-possession or trustee
in bankruptcy named in the Order, in which case such payment shall be disbursed
to the Indenture Trustee for distribution to such Noteholder upon proof of such
payment reasonably satisfactory to Financial Security). In connection with the
foregoing, Financial Security shall have the rights provided in the Indenture.
OTHER PROVISIONS OF THE NOTE POLICY
The terms "Receipt" and "Received," with respect to the Note Policy, shall
mean actual delivery to Financial Security and to its fiscal agent, if any,
prior to 12:00 noon, New York City time, on a Business Day; delivery either on a
day that is not a Business Day or after 12:00 noon, New York City time, shall be
deemed to be Received on the next succeeding Business Day. If any notice or
certificate given under the Note Policy by the Indenture Trustee or the Owner
Trustee, as the case may be, is not in proper form or is not properly completed,
executed or delivered, it shall be deemed not to have been Received, and
Financial Security or its fiscal agent shall promptly so advise the Indenture
Trustee or the Owner Trustee and the Indenture Trustee or the Owner Trustee may
submit an amended notice.
Under the Note Policy, "Business Day" means any day other than a Saturday,
Sunday, legal holiday or other day on which commercial banking institutions in
the City of New York or Minneapolis, Minnesota or any other location of any
successor Servicer, successor Owner Trustee or successor Collateral Agent are
authorized or obligated by law, executive order or governmental decree to be
closed.
Financial Security's obligations under the Note Policy in respect of
Scheduled Payments shall be discharged to the extent funds are transferred to
the Indenture Trustee as provided in the Note Policy whether or not such funds
are properly applied by the Indenture Trustee or the Owner Trustee.
Financial Security shall be subrogated to the rights of each Noteholder to
receive payments of principal and interest to the extent of any payment by
Financial Security under the Note Policy.
Claims under the Note Policy constitute direct, unsecured and unsubordinated
obligations of Financial Security ranking not less than PARI PASSU with other
unsecured and unsubordinated indebtedness of Financial Security for borrowed
money. Claims against Financial Security under each other financial guaranty
insurance policy issued thereby constitute PARI PASSU claims against the general
assets of Financial Security. The terms of the Note Policy cannot be modified or
altered by any other agreement or instrument, or by the merger, consolidation or
dissolution of the Trust. The Note Policy may not be canceled or revoked prior
to distribution in full of all Scheduled Payments. THE NOTE POLICY IS NOT
COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76
OF THE NEW YORK INSURANCE LAW. The Note Policy is governed by the laws of the
State of New York.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain federal income tax
consequences relating to the purchase, ownership, and disposition of the Notes.
The discussion is based upon the current provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), the Treasury regulations promulgated
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<PAGE>
thereunder and judicial or ruling authority, all of which are subject to change,
which change may be retroactive. The discussion does not purport to deal with
federal income tax consequences applicable to all categories of investors, some
of which may be subject to special rules. Moreover, there are no cases or
Internal Revenue Service (the "Service") rulings on similar transactions
involving a trust issuing debt with terms similar to those of the Notes. As a
result, the Service may disagree with all or a part of the discussion below.
Investors should consult their own tax advisors to determine the federal, state,
local, and any other tax consequences of the purchase, ownership, and
disposition of the Notes.
The Trust will be provided with an opinion of Dorsey & Whitney LLP, counsel
to the Seller, regarding certain federal income tax matters discussed below.
Such an opinion, however, is not binding on the Service or the courts. No ruling
on any of the issues discussed below will be sought from the Service.
TAX CHARACTERIZATION OF THE TRUST
Dorsey & Whitney LLP will deliver its opinion that the Trust will not be an
association (or publicly traded partnership) taxable as a corporation for
federal income tax purposes, with the result that the Trust itself will not be
subject to federal income tax. This opinion will be based on the assumption that
the terms of the Trust Agreement and related documents will be complied with,
and on counsel's conclusions that the nature of the income of the Trust will
exempt it from the rule that certain publicly traded partnerships are taxable as
corporations.
If the Trust were taxable as a corporation for federal income tax purposes,
the Trust would be subject to corporate income tax on its taxable income. The
Trust's taxable income would include all its income on the Receivables, possibly
reduced by its interest expense on the Notes. Any such corporate income tax
could materially reduce cash available to make payments on the Notes.
TAX CONSEQUENCES TO NOTEHOLDERS
TREATMENT OF THE NOTES AS INDEBTEDNESS. The Owner Trustee, on behalf of the
Trust, will agree, and the Noteholders will agree by their purchase of Notes, to
treat the Notes as debt for federal income tax purposes. Dorsey & Whitney LLP
will deliver its opinion that the Notes will be classified as debt for federal
income tax purposes. The discussion below assumes this characterization of the
Notes is correct.
INTEREST INCOME ON THE NOTES. As a general rule, interest paid or accrued
on the Notes, as well as market discount and original issue discount, if any,
will be treated as ordinary income to the Noteholders. A Noteholder using the
accrual method of accounting for federal income tax purposes is required to
include interest paid or accrued on the Notes in ordinary income as such
interest accrues, while a Noteholder using the cash receipts and disbursements
method of accounting for federal income tax purposes must include such interest
in ordinary income when payments are received (or made available for receipt) by
such Noteholder. It is anticipated that the Notes will not be issued with
"original issue discount" ("OID") within the meaning of Section 1273 of the
Code, and that the Trust will not take any OID deduction with respect to the
Notes.
MARKET DISCOUNT. The Notes, whether or not issued with original issue
discount, will be subject to the "market discount rules" of Section 1276 of the
Code. In general, these rules provide that if a Noteholder purchases the Note at
a market discount (i.e., a discount from its original issue price plus any
accrued original issue discount) that exceeds a de minimis amount specified in
the Code, and thereafter recognizes gain upon a disposition, the lesser of (i)
such gain or (ii) the accrued market discount will be taxed as ordinary interest
income. Generally, the accrued market discount will be the total market discount
on the Note multiplied by a fraction, the numerator of which is the number of
days the Noteholder held the Note and the denominator of which is the number of
days after the date the Noteholder acquired the Note until and including its
maturity date. The Noteholder may elect, however, to determine accrued market
discount under the constant-yield method, which election shall not be revoked
without the consent of the Service.
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Limitations imposed by the Code which are intended to match deductions with
the taxation of income may defer deductions for interest on indebtedness
incurred or continued, or short-sale expenses incurred, to purchase or carry a
Note with accrued market discount. A Noteholder may elect to include market
discount in gross income as it accrues and, if such Noteholder makes such an
election, is exempt from this rule. The adjusted basis of a Note subject to such
election will be increased to reflect market discount included in gross income,
thereby reducing any gain or increasing any loss on a sale or taxable
disposition. Any such election to include market discount in gross income as it
accrues shall apply to all debt instruments held by the Noteholder at the
beginning of the first taxable year to which the election applies or thereafter
acquired and is irrevocable without the consent of the Service.
AMORTIZABLE BOND PREMIUM. In general, if a Noteholder purchases a Note at a
premium (i.e., an amount in excess of the amount payable upon the maturity
thereof), such Noteholder will be considered to have purchased such Note with
"amortizable bond premium" equal to the amount of such excess. Such Noteholder
may elect to deduct the amortizable bond premium as it accrues under a
constant-yield method over the remaining term of the Note. Such Noteholder's tax
basis in the Note will be reduced by the amount of the amortizable bond premium
deducted. Any such election shall apply to all debt instruments (other than
instruments the interest on which is excludible from gross income) held by the
Noteholder at the beginning of the first taxable year to which the election
applies or thereafter acquired and is irrevocable without the consent of the
Service. Bond premium on a Note held by a Noteholder who does not elect to
deduct the premium will decrease the gain or increase the loss otherwise
recognized on the disposition of the Note.
SALE OR OTHER DISPOSITION. If a Noteholder sells a Note, the Noteholder
will recognize gain or loss in an amount equal to the difference between the
amount realized on the sale and the Noteholder's adjusted tax basis in the Note.
The adjusted tax basis of a Note to a particular Noteholder generally will equal
the Noteholder's cost for the Note, increased by any market discount, OID and
gain previously included by such Noteholder in income with respect to the Note
and decreased by principal payments previously received by such Noteholder and
the amount of bond premium previously amortized with respect to the Note. Any
such gain or loss will be capital gain or loss if the Note was held as a capital
asset, except for gain representing accrued interest and accrued market discount
not previously included in income. Any such capital gain would be taxed at
long-term rates if the Note is held for more than 18 months, at mid-term rates
if held for more than 12 but not more than 18 months and at short-term rates if
held for not more than 12 months. Capital losses generally may be used only to
offset capital gains.
FOREIGN HOLDERS. Generally, interest paid to a Noteholder who is a
nonresident alien individual or a foreign corporation and who does not hold the
Note in connection with a United States trade or business will be treated as
"portfolio interest" and therefore will be exempt from the 30% withholding tax.
Such a Noteholder will be entitled to receive interest payments on the Notes
free of United States federal income tax provided that such Noteholder
periodically provides the Indenture Trustee (or other person who would otherwise
be required to withhold tax) with a statement certifying under penalty of
perjury that such Noteholder is not a United States person and providing the
name and address of such Noteholder and will not be subject to federal income
tax on gain from the disposition of a Note unless the Noteholder is an
individual who is present in the United States for 183 days or more during the
taxable year in which the disposition takes place and certain other requirements
are met.
TAX ADMINISTRATION AND REPORTING. The Indenture Trustee will furnish to
each Noteholder with each distribution a statement setting forth the amount of
such distribution allocable to principal and to interest. Reports will be made
annually to the Service and to holders of record that are not excepted from the
reporting requirements regarding such information as may be required with
respect to interest and original issue discount, if any, with respect to the
Notes.
BACKUP WITHHOLDING. Under certain circumstances, a Noteholder may be
subject to "backup withholding" at a 31% rate. Backup withholding may apply to a
Noteholder who is a United States person if
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the holder, among other circumstances, fails to furnish his Social Security
number or other taxpayer identification number to the Indenture Trustee. Backup
withholding may apply, under certain circumstances, to a Noteholder who is a
foreign person if the Noteholder fails to provide the Indenture Trustee or the
Noteholder's securities broker with the statement necessary to establish the
exemption from federal income and withholding tax on interest on the Note.
Backup withholding, however, does not apply to payments on a Note made to
certain exempt recipients, such as corporations and tax-exempt organizations,
and to certain foreign persons. Noteholders should consult their tax advisors
for additional information concerning the potential application of backup
withholding to payments received by them with respect to a Note.
POSSIBLE ALTERNATIVE TREATMENT OF THE NOTES. If, contrary to the opinion of
Dorsey & Whitney LLP, the Service successfully asserted that the Notes did not
represent debt for federal income tax purposes, the Notes might be treated as
equity interests in the Trust. If so treated, the Trust might be taxable as a
corporation with the adverse consequences described above (and the taxable
corporation would not be able to reduce its taxable income by deductions for
interest expense on Notes recharacterized as equity). Alternatively, and most
likely in the view of Dorsey & Whitney LLP, the Trust might be treated as a
publicly traded partnership that would not be taxable as a corporation because
it would meet certain qualifying income tests. Nonetheless, treatment of the
Notes as equity interests in such a partnership could have adverse tax
consequences to certain holders. For example, income to foreign holders
generally would be subject to federal tax and federal tax return filing and
withholding requirements, and individual holders might be subject to certain
limitations on their ability to deduct their share of Trust expenses.
THE FEDERAL TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A NOTEHOLDER'S
PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR TAX
ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP
AND DISPOSITION OF NOTES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL,
FOREIGN, AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR
OTHER TAX LAWS.
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ERISA CONSIDERATIONS
Section 406 of ERISA, and/or Section 4975 of the Code, prohibits a pension,
profit-sharing or other employee benefit plan, as well as individual retirement
accounts and certain types of Keogh Plans (each a "Benefit Plan") from engaging
in certain transactions with persons that are "parties in interest" under ERISA
or "disqualified persons" under the Code with respect to such Benefit Plan. A
violation of these "prohibited transaction" rules may result in an excise tax or
other penalties and liabilities under ERISA and the Code for such persons. Title
I of ERISA also requires that fiduciaries of a Benefit Plan subject to ERISA
make investments that are prudent, diversified (except if prudent not to do so)
and in accordance with governing plan documents.
Certain transactions involving the purchase, holding or transfer of the
Securities might be deemed to constitute prohibited transactions under ERISA and
the Code if assets of the Trust were deemed to be assets of a Benefit Plan.
Under a regulation issued by the United States Department of Labor (the "Plan
Assets Regulation"), the assets of the Trust would be treated as plan assets of
a Benefit Plan for the purposes of ERISA and the Code only if the Benefit Plan
acquires an "Equity Interest" in the Trust and none of the exceptions contained
in the Plan Assets Regulation is applicable. An equity interest is defined under
the Plan Assets Regulation as an interest other than an instrument which is
treated as indebtedness under applicable local law and which has no substantial
equity features. Although there is little guidance on the subject, the Seller
believes that, at the time of their issuance, the Notes should be treated as
indebtedness without substantial equity features for purposes of the Plan Assets
Regulation. This determination is based in part upon the traditional debt
features of the Notes, including the reasonable expectation of purchasers of
Notes that the Notes will be repaid when due, as well as the absence of
conversion rights, warrants and other typical equity features. The debt
treatment of the Notes for ERISA purposes could change if the Trust incurred
losses. However, without regard to whether the Notes are treated as an Equity
Interest for such purposes, the acquisition or holding of Notes by or on behalf
of a Benefit Plan could be considered to give rise to a prohibited transaction
if the Trust, the Owner Trustee or the Indenture Trustee, the owner of
collateral, or any of their respective affiliates is or becomes a party in
interest or a disqualified person with respect to such Benefit Plan. In such
case, certain exemptions from the prohibited transaction rules could be
applicable depending on the type and circumstances of the plan fiduciary making
the decision to acquire a Note. Included among these exemptions are: Prohibited
Transaction Class Exemption ("PTCE") 90-1, regarding investments by insurance
company pooled separate accounts; PTCE 95-60 regarding investments by insurance
company general accounts; PTCE 91-38 regarding investments by bank collective
investment funds; PTCE 84-14, regarding transactions effected by "qualified
professional asset managers"; and PTCE 96-23 regarding transactions effected by
"in-house asset managers."
Employee benefit plans that are governmental plans (as defined in Section
3(32) of ERISA) and certain church plans (as defined in Section 3(33) of ERISA)
are not subject to ERISA requirements; however, such plans may be subject to
comparable state law restrictions.
A plan fiduciary considering the purchase of Notes should consult its tax
and/or legal advisors regarding whether the assets of the Trust would be
considered plan assets, the possibility of exemptive relief from the prohibited
transaction rules and other issues and their potential consequences.
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UNDERWRITING
The Underwriters named below have agreed, severally and not jointly, and
subject to the terms and conditions set forth in the Underwriting Agreement
among the Seller, Arcadia Financial and the Underwriters, to purchase from the
Trust the respective principal amounts of the Notes set forth opposite their
names below:
CLASS A-1 AND A-2 NOTES AND CLASS A-3 NOTES
<TABLE>
<CAPTION>
-------------------------------------------------------
PRINCIPAL AMOUNT PRINCIPAL AMOUNT PRINCIPAL AMOUNT
OF CLASS A-1 OF CLASS A-2 OF CLASS A-3
NOTES NOTES NOTES
----------------- ----------------- -----------------
<S> <C> <C> <C>
J.P. Morgan Securities Inc............................... $ 18,550,000 $ 58,595,000 $ 47,150,000
BancAmerica Robertson Stephens........................... 18,550,000 58,300,000 47,100,000
Donaldson, Lufkin & Jenrette Securities Corporation...... 18,550,000 58,300,000 47,100,000
----------------- ----------------- -----------------
Total................................................ $ 55,650,000 $ 175,195,000 $ 141,350,000
----------------- ----------------- -----------------
----------------- ----------------- -----------------
</TABLE>
CLASS A-4 AND A-5 NOTES
<TABLE>
<CAPTION>
------------------------------------
PRINCIPAL AMOUNT PRINCIPAL AMOUNT
OF CLASS A-4 OF CLASS A-5
NOTES NOTES
----------------- -----------------
<S> <C> <C>
J.P. Morgan Securities Inc.................................................. $ 33,505,000 $ 17,500,000
BancAmerica Robertson Stephens.............................................. 33,400,000 17,500,000
Donaldson, Lufkin & Jenrette Securities
Corporation............................................................... 33,400,000 17,500,000
----------------- -----------------
Total................................................................... $ 100,305,000 $ 52,500,000
----------------- -----------------
----------------- -----------------
</TABLE>
The Underwriters have advised the Seller that the Underwriters propose
initially to offer the Notes to the public at the respective public offering
prices set forth on the cover page of this Prospectus Supplement and to certain
dealers at such prices less a concession not in excess of 0.0850% per Class A-1
Note, 0.1000% per Class A-2 Note, 0.1350% per Class A-3 Note, 0.1650% per Class
A-4 Note and 0.2000% per Class A-5 Note. The Underwriters may allow, and such
dealers may reallow, a discount not in excess of 0.0275% per Class A-1 Note,
0.0350% per Class A-2 Note, 0.0425% per Class A-3 Note, 0.0525% per Class A-4
Note and 0.0650% per Class A-5 Note to certain other dealers. After the initial
public offering, the public offering prices of the Notes and such concessions
and discounts may be changed.
The Underwriting Agreement provides that the Underwriters' obligations
thereunder are subject to approval of certain legal matters by counsel and to
various other conditions. The nature of the Underwriters' obligation is such
that the Underwriters are committed to purchase and pay for all of the Notes if
any Notes are purchased.
Each Underwriter has represented and agreed that (a) it has only issued or
passed on and will only issue or pass on in the United Kingdom any document
received by it in connection with the issue of the Notes to a person who is of a
kind described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or who is a person to whom the document
may otherwise lawfully be issued or passed on, (b) it has complied and will
comply with all applicable provisions of the Financial Services Act 1986 and
other applicable laws and regulations with respect to anything done by it in
relation to the Notes in, from or otherwise involving the United Kingdom and (c)
if that Underwriter is an authorized person under the Financial Services Act
1986, it has only promoted and will only promote (as that term is defined in
Regulation 1.02 of the Financial Services (Promotion of Unregulated Schemes)
Regulations 1991) to any person in the United Kingdom the scheme described
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herein if that person is of a kind described either in Section 76(2) of the
Financial Services Act 1986 or in Regulation 1.04 of the Financial Services
(Promotion of Unregulated Schemes) Regulations 1991.
Arcadia Financial and the Seller have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under applicable securities
laws, or to contribute to payments the Underwriters may be required to make in
respect thereof.
In connection with the offering, the Underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the Notes.
Specifically, the Underwriters may overallot the offering, creating a syndicate
short position. Underwriters may bid for and purchase Notes in the open market
to cover syndicate short positions. In addition, the Underwriters may bid for
and purchase Notes in the open market to stabilize the price of the Notes. These
activities may stabilize or maintain the market price of the Notes above
independent market levels. The Underwriters are not required to engage in these
activities, and may end these activities at any time.
J.P. Morgan Securities Inc. or its affiliates and BancAmerica Robertson
Stephens or its affiliates provide certain warehousing facilities to Arcadia
Financial, and Donaldson, Lufkin & Jenrette Securities Corporation provides
hedging arrangements to Arcadia Financial. Each of the Underwriters may perform
other customary investment banking services for Arcadia Financial.
LEGAL MATTERS
Certain matters with respect to the validity of the Notes and with respect
to the federal income tax matters discussed under "Certain Federal Income Tax
Consequences" herein will be passed upon for the Seller by Dorsey & Whitney LLP,
Minneapolis, Minnesota. The validity of the Notes will be passed upon for the
Underwriters by Mayer, Brown & Platt, New York, New York. Certain legal matters
relating to the Note Policy will be passed upon for Financial Security by Bruce
E. Stern, General Counsel, Financial Security. Financial Security is represented
by Dewey Ballantine, New York, New York.
EXPERTS
The consolidated balance sheets of Financial Security and Subsidiaries as of
December 31, 1996 and 1995 and the related consolidated statements of income,
changes in shareholder's equity and cash flows for each of the three years in
the period ended December 31, 1996, incorporated by reference in this Prospectus
Supplement, have been incorporated herein in reliance on the report of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing.
S-43
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM PAGE
- ----------------------------------------- -----------
<S> <C>
Aggregate Principal Balance.............. S-8
APR...................................... S-7
Arcadia Financial........................ S-1, S-6
Available Funds.......................... S-33
Backup Servicer.......................... S-6
Benefit Plan............................. S-41
Business Day............................. S-9, S-37
Cedel.................................... S-4
Class A-1 Final Scheduled Distribution
Date................................... S-2
Class A-1 Holdback Amount................ S-32
Class A-1 Holdback Subaccount............ S-32
Class A-1 Notes.......................... S-1, S-6
Class A-1 Rate........................... S-9
Class A-2 Final Scheduled Distribution
Date................................... S-2
Class A-2 Notes.......................... S-1, S-6
Class A-2 Rate........................... S-9
Class A-3 Final Scheduled Distribution
Date................................... S-2
Class A-3 Notes.......................... S-1, S-6
Class A-3 Rate........................... S-9
Class A-4 Final Scheduled Distribution
Date................................... S-2
Class A-4 Notes.......................... S-1, S-6
Class A-4 Rate........................... S-9
Class A-5 Final Scheduled Distribution
Date................................... S-2
Class A-5 Notes.......................... S-1, S-6
Class A-5 Rate........................... S-9
Closing Date............................. S-6
Code..................................... S-37
Collateral Agent......................... S-33
Collected Funds.......................... S-32
Collection Account....................... S-13, S-31
Commission............................... S-4
Credit Enhancement Fee................... S-33
Cutoff Date.............................. S-19
Dealer Agreements........................ S-19
Dealer Assignments....................... S-19
Dealers.................................. S-7
Determination Date....................... S-32
Designated Accounts...................... S-31
Distribution Date........................ S-2, S-9
DTC...................................... S-4
Euroclear................................ S-4
Events of Default........................ S-29
Exchange Act............................. S-4
<CAPTION>
TERM PAGE
- ----------------------------------------- -----------
<S> <C>
Final Scheduled Distribution Date........ S-2
Final Scheduled Maturity Date............ S-8
Financed Vehicles........................ S-7
Financial Security....................... S-1
Funding Period........................... S-12
Holdings................................. S-4, S-25
Indenture................................ S-1
Indenture Collateral Agent............... S-7
Indenture Trustee........................ S-6
Initial Cutoff Date...................... S-2, S-7
Initial Receivables...................... S-7
Insurance Agreement...................... S-12
Insurance Agreement Indenture Cross
Defaults............................... S-29
Interest Period.......................... S-9, S-27
Interest Rates........................... S-9
Issuer................................... S-6
LIBOR.................................... S-11
Liquidated Receivable.................... S-33
Loan..................................... S-19
Mandatory Redemption..................... S-11, S-28
Monthly Period........................... S-8
Moody's.................................. S-2, S-14
Note Distribution Account................ S-31
Note Policy.............................. S-2
Note Prepayment Amount................... S-11, S-28
Note Prepayment Premium.................. S-11
Noteholders.............................. S-9
Noteholders' Distributable Amount........ S-34
Noteholders' Interest Carryover
Shortfall.............................. S-34
Noteholders' Interest Distributable
Amount................................. S-34
Noteholders' Monthly Interest
Distributable Amount................... S-34
Noteholders' Monthly Principal
Distributable Amount................... S-34
Noteholders' Principal Carryover
Shortfall.............................. S-34
Noteholders' Principal Distributable
Amount................................. S-34
Notes.................................... S-1, S-6
Obligor.................................. S-8
OID...................................... S-38
Order.................................... S-36
Original Pool Balance.................... S-11
Owner Trustee............................ S-6
Payment Date............................. S-9
</TABLE>
S-44
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ----------------------------------------- -----------
Plan Assets Regulation................... S-41
<S> <C>
Pre-Funded Amount........................ S-7
Pre-Funding Account...................... S-2, S-12
Preliminary Cutoff Date.................. S-7
Preliminary Initial Receivables.......... S-8
Principal Distribution Amount............ S-34
PTCE..................................... S-41
Purchase Agreements...................... S-8, S-30
Purchased Receivable..................... S-35
Rating Agencies.......................... S-2, S-14
Receipt.................................. S-37
Receivable Files......................... S-19
Receivables.............................. S-2
Receivables Pool......................... S-8
Received................................. S-37
Record Date.............................. S-9
Redemption Price......................... S-29
Repurchase Event......................... S-9
Requisite Reserve Amount................. S-31
<CAPTION>
TERM PAGE
- ----------------------------------------- -----------
<S> <C>
Reserve Account.......................... S-31
S&P...................................... S-2, S-14
Sale and Servicing Agreement............. S-7
Scheduled Payments....................... S-36
Seller................................... S-1, S-6
Service.................................. S-38
Servicer................................. S-6
Servicer's Certificate................... S-32
Subsequent Cutoff Date................... S-7
Subsequent Purchase Agreement............ S-9
Subsequent Receivables................... S-2, S-7
Subsequent Transfer Agreement............ S-15
Subsequent Transfer Date................. S-7
Trust.................................... S-1, S-6
Trust Agreement.......................... S-6
Trust Documents.......................... S-30
Trust Property........................... S-8
Underwriters............................. S-4
</TABLE>
S-45
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
PROSPECTUS
ARCADIA AUTOMOBILE RECEIVABLES TRUSTS
AUTOMOBILE RECEIVABLES-BACKED CERTIFICATES
AUTOMOBILE RECEIVABLES-BACKED NOTES
------------------------------
ARCADIA RECEIVABLES FINANCE CORP.
(SELLER)
------------------------------
ARCADIA FINANCIAL LTD.
(SERVICER)
------------------------------
The Automobile Receivables-Backed Certificates (the "Certificates") and the
Automobile Receivables-Backed Notes (the "Notes" and, collectively with the
Certificates, the "Securities") described herein may be sold from time to time
in one or more series, in amounts, at prices and on the terms to be determined
at the time of sale and to be set forth in a supplement to this Prospectus (a
"Prospectus Supplement"). Each series of Securities may include either one or
more classes of Certificates or, if Notes are issued as part of a series, one or
more classes of Notes and/or one or more classes of Certificates, as set forth
in the related Prospectus Supplement.
The Certificates, if any, and the Notes, if any, of any series of Securities
will be issued by a trust (a "Trust") to be formed with respect to such series
by Arcadia Receivables Finance Corp. (the "Seller"), a wholly owned subsidiary
of Arcadia Financial Ltd. ("Arcadia Financial"). The assets of each Trust (the
"Trust Property") will include a pool of retail installment sales contracts and
promissory notes (the "Receivables") purchased by Arcadia Financial from motor
vehicle dealers and secured by new and used automobiles and light trucks,
certain monies paid or payable thereunder after the Cutoff Date set forth in the
related Prospectus Supplement (the "Cutoff Date"), an assignment of Arcadia
Financial's security interests in the vehicles financed thereby, and certain
other property, as more fully described herein and in the related Prospectus
Supplement. In addition, if so specified in the related Prospectus Supplement,
the Trust Property will include monies on deposit in one or more trust accounts
to be established with an Indenture Trustee, which may include a Pre-Funding
Account which would be used to purchase additional Receivables (the "Subsequent
Receivables") from the Seller from time to time during the Pre-Funding Period
specified in the related Prospectus Supplement.
Each Trust will be formed pursuant to either (i) a Pooling and Servicing
Agreement (the "Pooling and Servicing Agreement") to be entered into among the
Seller, Arcadia Financial, in its individual capacity and as Servicer, and the
Owner Trustee specified in the related Prospectus Supplement (the "Owner
Trustee") or (ii) a Trust Agreement (the "Trust Agreement") to be entered into
among the Seller, the Owner Trustee and certain other parties as specified in
the related Prospectus Supplement. If the Trust is formed pursuant to a Trust
Agreement, a Sale and Servicing Agreement (the "Sale and Servicing Agreement")
will be entered into among the Seller, Arcadia Financial, in its individual
capacity and as Servicer, the Trust and the Backup Servicer (as defined herein).
In either case, the Pooling and Servicing Agreement or the Trust Agreement and
the Sale and Servicing Agreement are collectively referred to herein as the
"Trust Documents." The Notes, if any, of a series will be issued and secured
pursuant to an Indenture (the "Indenture") between the Trust and the Indenture
Trustee specified in the related Prospectus Supplement (the "Indenture
Trustee").
Except as otherwise provided in the related Prospectus Supplement, each
class of Securities of any series will represent the right to receive a
specified amount of payments of principal and interest on the related
Receivables in the manner described herein and in the related Prospectus
Supplement. The right of each class of Securities to receive payments may be
senior or subordinate to the rights of one or more of the other classes of such
series. A series may include two or more classes of Certificates or Notes which
differ as to the timing and priority of payment, interest rate or amount of
distributions in respect of principal or interest or both. A series may include
one or more classes of Certificates or Notes entitled to distributions in
respect of principal, with disproportionate, nominal or no interest
distributions, or to interest distributions, with disproportionate, nominal or
no distributions in respect of principal. Distributions on Certificates of any
series will be subordinated in priority to payments due on the related Notes, if
any, to the extent described herein and in the related Prospectus Supplement.
The Certificates will represent fractional undivided interests in the related
Trust.
Each class of Securities will represent the right to receive distributions
or payments in the amounts, at the rates, and on the dates set forth in the
related Prospectus Supplement. The rate of distributions in respect of principal
on Certificates, if any, and payment in respect of principal on Notes, if any,
of any class will depend on the priority of payment of such class and the rate
and timing of payments (including prepayments, liquidations and repurchases of
Receivables) on the related Receivables.
Unless otherwise provided in the related Prospectus Supplement, the
Certificates, if any, and the Notes, if any, of any series initially will be
represented by certificates and notes registered in the name of Cede & Co., the
nominee of The Depository Trust Company ("DTC"). The interests of beneficial
owners of the Securities will be represented by book entries on the records of
the participating members of DTC. Definitive Securities will be available only
under limited circumstances.
There currently is no secondary market for the Securities. There can be no
assurance that any such market will develop or, if it does develop, that it will
continue. The Securities will not be listed on any securities exchange.
FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE CONSIDERED BY PROSPECTIVE
PURCHASERS OF THE SECURITIES, SEE "RISK FACTORS" AT PAGE 10 HEREIN.
---------------------
THE CERTIFICATES REPRESENT INTERESTS IN AND THE NOTES REPRESENT OBLIGATIONS OF
THE RELATED TRUST AND DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF ARCADIA
FINANCIAL, THE SELLER OR ANY AFFILIATE OF EITHER.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------
Retain this Prospectus for future reference. This Prospectus may not be used
to consummate sales of securities offered hereby unless accompanied by a
Prospectus Supplement.
The date of this Prospectus is March 11, 1998.
<PAGE>
AVAILABLE INFORMATION
The Seller, as originator of each Trust, has filed with the Securities and
Exchange Commission (the "Commission") a Registration Statement (together with
all amendments and exhibits thereto, referred to herein as the "Registration
Statement") under the Securities Act of 1933, as amended, with respect to the
Securities offered pursuant to this Prospectus. For further information,
reference is made to the Registration Statement which is available for
inspection without charge at the office of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the regional offices of the Commission at
Seven World Trade Center, Suite 1300, New York, New York 10048 and at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511, and copies of which may be obtained from the Commission at
prescribed rates. The Commission also maintains a Web site (http://www.sec.gov)
at which the Registration Statement and other information regarding the Seller
may be accessed.
REPORTS TO SECURITYHOLDERS
Unless otherwise provided in the related Prospectus Supplement, unless and
until Definitive Certificates or Definitive Notes are issued, unaudited monthly
and annual reports, containing information concerning each Trust and prepared by
the Servicer, will be sent on behalf of the Trust to the Owner Trustee for the
Certificateholders, the Indenture Trustee for the Noteholders and Cede & Co., as
registered holder of the Certificates and the Notes and the nominee of DTC. See
"Certain Information Regarding the Securities-Statements to Securityholders" and
"-Book-Entry Registration." Certificateholders and Noteholders are collectively
referred to herein as the "Securityholders." Certificate Owners or Note Owners
may receive such reports, upon written request, together with a certification
that they are Certificate Owners or Note Owners and payment of any expenses
associated with the distribution of such reports, from the Owner Trustee, with
respect to Certificate Owners, or the Indenture Trustee, with respect to Note
Owners, at the addresses specified in the related Prospectus Supplement. Such
reports will not constitute financial statements prepared in accordance with
generally accepted accounting principles. Neither the Seller nor Arcadia
Financial intends to send any of its financial reports to Securityholders. The
Servicer, on behalf of each Trust, will file with the Commission periodic
reports concerning each Trust to the extent required under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations of the Commission thereunder.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Servicer on behalf of each Trust pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Prospectus and prior to the termination of the offering of the related
Securities shall be deemed to be incorporated by reference into this Prospectus
and the related Prospectus Supplement and to be a part hereof and thereof from
the respective dates of filing of such documents. Any statement contained herein
or in a document all or any portion of which is deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus and the related Prospectus Supplement to the extent that a
statement contained herein or in any other subsequently filed document which
also is deemed to be incorporated by reference herein modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus or
the related Prospectus Supplement.
The Servicer will provide without charge to any person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the foregoing documents incorporated herein by reference (other
than certain exhibits to such documents). Requests for such copies should be
directed to Investor Relations, Arcadia Financial Ltd., 7825 Washington Avenue
South, Minneapolis, Minnesota 55439-2435, telephone number (612) 942-9880.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS AND BY REFERENCE TO
THE INFORMATION WITH RESPECT TO THE SECURITIES CONTAINED IN THE RELATED
PROSPECTUS SUPPLEMENT TO BE PREPARED AND DELIVERED IN CONNECTION WITH THE
OFFERING OF EACH SERIES OF SECURITIES. CERTAIN CAPITALIZED TERMS USED IN THIS
PROSPECTUS SUMMARY ARE DEFINED ELSEWHERE IN THIS PROSPECTUS AND IN THE RELATED
PROSPECTUS SUPPLEMENT. A LISTING OF THE PAGES ON WHICH SOME OF SUCH TERMS ARE
DEFINED IS FOUND IN THE "INDEX OF DEFINED TERMS."
<TABLE>
<S> <C>
Issuer............................ With respect to each series of Securities, a trust (the
"Trust") will be formed by Arcadia Receivables Finance
Corp. (the "Seller") pursuant to either a Pooling and
Servicing Agreement among the Seller, Arcadia Financial,
in its individual capacity and as Servicer (in such
capacity referred to herein as the "Servicer"), and the
Owner Trustee specified in the related Prospectus
Supplement, or a Trust Agreement between the Seller, the
Owner Trustee specified in the related Prospectus
Supplement and certain other parties as specified in the
related Prospectus Supplement.
Seller............................ Arcadia Receivables Finance Corp., a wholly owned
subsidiary of Arcadia Financial. See "The Seller."
Servicer.......................... Arcadia Financial Ltd. See "Arcadia Financial Ltd."
Owner Trustee..................... The Owner Trustee specified in the related Prospectus
Supplement (the "Owner Trustee"). See "Description of
the Purchase Agreements and the Trust Documents-Servicer
Termination Events" and "-The Owner Trustee."
Backup Servicer................... Arcadia Financial may be terminated as Servicer under
certain circumstances, at which time the Backup Servicer
specified in the related Prospectus Supplement (the
"Backup Servicer") will automatically become the
Servicer. See "Description of the Purchase Agreements
and the Trust Documents-Servicer Termination Events" and
"-The Backup Servicer."
Indenture Trustee................. With respect to any Series of Securities including one
or more classes of Notes, the Indenture Trustee
specified in the related Prospectus Supplement (the
"Indenture Trustee").
The Certificates.................. Each series of Securities may include one or more
classes of Certificates which will be issued pursuant to
the related Trust Documents.
Unless otherwise specified in the related Prospectus
Supplement, Certificates will be available for purchase
in denominations of $1,000 and in integral multiples
thereof and will be available in book-entry form only.
Unless otherwise specified in the related Prospectus
Supplement, holders of Certificates
("Certificateholders") will be able to receive
Definitive Certificates only in the limited
circumstances described herein or in the related
Prospectus Supplement. See "Certain Information
Regarding the Securities-Book-Entry Registration."
Unless otherwise specified in the related Prospectus
Supplement, each class of Certificates will have a
stated
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Certificate Balance (as defined in the related
Prospectus Supplement) and will accrue interest on such
Certificate Balance at a specified rate (with respect to
each class of Certificates, the "Pass-Through Rate").
Each class of Certificates may have a different
Pass-Through Rate, which may be a fixed, variable or
adjustable Pass-Through Rate, or any combination of the
foregoing. The related Prospectus Supplement will
specify the Pass-Through Rate for each class of
Certificates, or the initial Pass-Through Rate and the
method for determining subsequent changes to the
Pass-Through Rate.
A series may include two or more classes of Certificates
which differ as to timing of distributions, sequential
order, priority of payment, seniority, allocation of
loss, Pass-Through Rate or amount of distributions in
respect of principal or interest, or as to which
distributions in respect of principal or interest on any
class may or may not be made upon the occurrence of
specified events or on the basis of collections from
designated portions of the Receivables Pool. In
addition, a series may include one or more classes of
Certificates ("Strip Certificates") entitled to (i)
distributions in respect of principal with
disproportionate, nominal or no interest distributions,
or (ii) interest distributions, with disproportionate,
nominal or no distributions in respect of principal.
With respect to any series of Securities including one
or more classes of Notes, distributions in respect of
the Certificates may be subordinated in priority of
payment to payments on the Notes, to the extent
specified in the related Prospectus Supplement.
If the Seller or Servicer exercises its option to
purchase the Receivables of a Trust on the terms and
conditions described below under "Description of the
Purchase Agreements and the Trust
Documents-Termination," Certificateholders will receive
an amount in respect of the Certificates as specified in
the related Prospectus Supplement. In addition, if the
related Prospectus Supplement provides that the property
of a Trust will include a Pre-Funding Account (as such
term is defined in the related Prospectus Supplement,
the "Pre-Funding Account"), Certificateholders will
receive a distribution in respect of principal on or
immediately following the end of the funding period
specified in the related Prospectus Supplement (the
"Pre-Funding Period") in an amount and manner specified
in the related Prospectus Supplement.
The Notes......................... With respect to any series of Securities including one
or more classes of Notes, such Notes will be issued
pursuant to an Indenture.
Unless otherwise specified in the related Prospectus
Supplement, Notes will be available for purchase in
denominations of $1,000 and integral multiples thereof,
and will be available in book-entry form only. Unless
otherwise specified in the related Prospectus
Supplement, holders of Notes
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
("Noteholders") will be able to receive Definitive Notes
only in the limited circumstances described herein or in
the related Prospectus Supplement. See "Certain
Information Regarding the Securities-Book-Entry
Registration."
Unless otherwise specified in the related Prospectus
Supplement, each class of Notes will have a stated
principal amount and will bear interest at a specified
rate or rates (with respect to each class of Notes, the
"Interest Rate"). Each class of Notes may have a
different Interest Rate, which may be a fixed, variable
or adjustable Interest Rate, or any combination of the
foregoing. The related Prospectus Supplement will
specify the Interest Rate and the method for determining
subsequent changes to the Interest Rate.
A series may include two or more classes of Notes which
differ as to the timing and priority of payment,
seniority, allocations of loss, Interest Rate or amount
of payments of principal or interest, or as to which
payments of principal or interest may or may not be made
upon the occurrence of specified events or on the basis
of collections from designated portions of the
Receivables Pool. In addition, a series may include one
or more classes of Notes ("Strip Notes") entitled to (i)
principal payments with disproportionate, nominal or no
interest payments or (ii) interest payments with
disproportionate, nominal or no principal payments.
If the Seller or the Servicer exercises its option to
purchase the Receivables of a Trust on the terms and
conditions described below under "Description of the
Purchase Agreements and the Trust
Documents-Termination," the outstanding Notes, if any,
of such series will be redeemed as set forth in the
related Prospectus Supplement. In addition, if the
related Prospectus Supplement provides that the property
of a Trust will include a Pre-Funding Account, the
outstanding Notes, if any, of such series will be
subject to partial redemption on or immediately
following the end of the Pre-Funding Period in an amount
and manner specified in the related Prospectus
Supplement. In the event of such partial redemption, the
Noteholders may be entitled to receive a prepayment
premium from the Trust, in the amount and to the extent
provided in the related Prospectus Supplement.
Trust Property.................... Each Certificate, if any, will represent a fractional
undivided interest in, and each Note, if any, will
represent an obligation of, the related Trust. The
assets of each Trust (the "Trust Property") will
include, among other things, a pool (the "Receivables
Pool") of retail installment sales contracts and
promissory notes (the "Receivables") purchased or to be
purchased from motor vehicle dealers ("Dealers") by
Arcadia Financial and secured by new and used
automobiles and light trucks (the "Financed Vehicles"),
certain monies paid or payable thereunder after the
Cutoff Date (as specified in the related Prospectus
Supplement), an assignment of Arcadia Financial's
security interests in the
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Financed Vehicles and of the right to receive proceeds
from claims on certain insurance policies covering the
Financed Vehicles or the Obligors, the assignment of
certain rights of Arcadia Financial against the Dealers
originating such Receivables, the Collection Account,
including all investments therein, all income from the
investment of funds therein and all proceeds thereof,
certain other accounts and the proceeds thereof and
certain other rights under the Trust Documents. In
addition, if so specified in the related Prospectus
Supplement, the Trust Property will include monies on
deposit in a Pre-Funding Account to be established with
the Indenture Trustee or the Owner Trustee, which will
be used to purchase Subsequent Receivables (as defined
below) from the Seller from time to time during the
Pre-Funding Period specified in the related Prospectus
Supplement, as well as any Subsequent Receivables so
purchased. See "The Trusts."
The Receivables of each Trust (except for Subsequent
Receivables) will be purchased by the Seller from
Arcadia Financial pursuant to a purchase agreement (the
"Purchase Agreement") between the Seller and Arcadia
Financial on or prior to the date of issuance of the
Securities. If and to the extent provided in the related
Prospectus Supplement, the Seller will be obligated
(subject only to the availability thereof) to purchase
from Arcadia Financial and to sell to the related Trust,
and the related Trust will be obligated to purchase from
the Seller (subject to the satisfaction of certain
conditions described in the applicable Purchase
Agreement), additional Receivables (the "Subsequent
Receivables") from time to time (as frequently as daily)
during the Pre-Funding Period specified in the related
Prospectus Supplement having an aggregate principal
balance approximately equal to the amount on deposit in
the Pre-Funding Account (the "Pre-Funded Amount") on
such Closing Date.
The Trust Property of each Trust will also include an
assignment of the Seller's rights under the related
Purchase Agreement, including rights against Arcadia
Financial upon the occurrence of certain breaches of
representations and warranties thereunder (a "Repurchase
Event"). See "Description of the Purchase Agreements and
Trust Documents-Sale and Assignment of the Receivables"
and "-Servicing Procedures."
Credit Enhancement................ If and to the extent specified in the related Prospectus
Supplement, credit enhancement with respect to a Trust
or any class of Securities may include any one or more
of the following: a financial guaranty insurance policy
(a "Policy") issued by an insurer specified in the
related Prospectus Supplement (a "Security Insurer"),
subordination of one or more other classes of
Securities, a reserve account, overcollateralization,
letters of credit, credit or liquidity facilities,
repurchase obligations, third party payments or other
support, cash deposits or other arrangements. Unless
otherwise specified in the related
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
Prospectus Supplement, any form of credit enhancement
will have certain limitations and exclusions from
coverage thereunder, which will be described in the
related Prospectus Supplement. See "Description of the
Purchase Agreements and the Trust Documents-Credit
Enhancement."
Servicing......................... The Servicer will be responsible for managing,
administering, servicing and making collections on the
Receivables held by each Trust. Unless otherwise
specified in the related Prospectus Supplement, with
respect to each series of Securities compensation to the
Servicer will include a monthly fee (the "Servicing
Fee") which will be payable from the related Trust to
the Servicer on each Distribution Date, in an amount
equal to the product of one-twelfth of 1.25% per annum
multiplied by the aggregate principal balance of the
Receivables (the "Aggregate Principal Balance") as of
the first day of the prior calendar month, plus any late
fees and other administrative fees and expenses or
similar charges collected with respect to the
Receivables during such Monthly Period. See "Description
of the Purchase Agreements and the Trust
Documents-Servicing Compensation."
Monthly Advances.................. Unless otherwise specified in the related Prospectus
Supplement, if the amount paid on a Receivable held by a
particular Trust in any Monthly Period is less than the
full amount of the interest accrued on such Receivable
for the number of calendar days in such Monthly Period,
the Servicer will advance to such Trust the amount of
such shortfall (a "Monthly Advance"); provided, however,
that the Servicer shall not be required to make a
Monthly Advance with respect to a Receivable extended
for any Monthly Period during which no Scheduled Payment
is due according to the terms of such extension; and
provided further, that the Servicer shall not be
required to make a Monthly Advance with respect to a
Receivable that is less than 31 days delinquent. The
Servicer will be entitled to reimbursement of a Monthly
Advance from subsequent payments and collections on or
with respect to the related Receivable or, if such
payments or collections are insufficient to reimburse
the Servicer, from collections on other Receivables if
that Receivable becomes a Liquidated Receivable. Unless
otherwise specified in the related Prospectus
Supplement, the Servicer will not make any Monthly
Advance with respect to the principal portion of any
Scheduled Payment. See "Description of the Purchase
Agreements and the Trust Documents-Monthly Advances."
Receivables....................... The Receivables forming part of the Trust Property of
each Trust were or will have been originated by Dealers
and sold by the Dealers to Arcadia Financial in the
ordinary course of business. The Receivables will
generally be prepayable at any time without penalty to
the purchaser or co-purchasers of the Financed Vehicle
or other person or persons who are obligated to make
payments thereunder (each, an "Obligor"). See "The
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Receivables." Information with respect to each
Receivables Pool, including the weighted average annual
percentage rate and the weighted average remaining
maturity, will be set forth in the related Prospectus
Supplement.
Collection Account................ With respect to each series of Securities, the Servicer
will establish and maintain one or more separate
accounts (the "Collection Account") in the name of the
Owner Trustee or, in the case of any series including
one or more classes of Notes, in the name of the
Indenture Trustee for the benefit of the
Certificateholders, if any, and the Noteholders, if any.
All payments from Obligors that are received by the
Lockbox Bank (as defined below) on behalf of each Trust
will be deposited in the related Collection Account no
later than two Business Days after receipt thereof.
Unless otherwise specified in the related Prospectus
Supplement, all payments from Obligors and all proceeds
(net of reasonable expenses of collection) with respect
to Liquidated Receivables ("Liquidation Proceeds") that
are received directly by the Servicer will be deposited
in the related Collection Account no later than one
Business Day after receipt thereof. Unless otherwise
specified in the related Prospectus Supplement, the
Servicer will be permitted to use any alternative
remittance schedule acceptable to the Rating Agencies
(as defined below) and to the Security Insurer, if any
(unless the Security Insurer shall be in continuing
default on its obligations under the Policy or certain
bankruptcy events shall have occurred with respect to
the Security Insurer (an "Insurer Default")). See
"Description of the Purchase Agreements and the Trust
Documents-Collections."
Mandatory Purchase of Certain
Receivables...................... With respect to each series of Securities, Arcadia
Financial will make certain representations and
warranties relating to the Receivables held by the
related Trust to the Seller in the related Purchase
Agreement, the Seller will assign the right to enforce
such representations and warranties to the Owner Trustee
for the benefit of the related Trust and the Security
Insurer, if any, and if such series of Securities
includes one or more classes of Notes, the Owner Trustee
will assign its right to enforce such representations
and warranties to the related Indenture Trustee as
collateral for the Notes. The Owner Trustee and the
Indenture Trustee, if any, as assignees of the
obligations of Arcadia Financial to the Seller under the
Purchase Agreement, will be entitled to require that
Arcadia Financial repurchase any Receivable if the
interests of the Certificateholders, if any, the
Noteholders, if any, or the related Trust therein are
materially and adversely affected by a breach of any
such representation or warranty (a "Repurchase Event").
See "Description of the Purchase Agreements and the
Trust Documents-Sale and Assignment of the Receivables."
Optional Purchase of
Receivables...................... Unless otherwise specified in the related Prospectus
Supplement, with respect to each series of Securities,
the Seller
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or the Servicer may purchase all the Receivables held by
the related Trust on any Distribution Date following the
first Monthly Period as of which the Aggregate Principal
Balance has declined to 10% or less (or such other
percentage as may be specified in the related Prospectus
Supplement) of the Cutoff Date Principal Balance,
subject to certain provisions in the related Trust
Documents. See "Description of the Purchase Agreements
and the Trust Documents-Termination."
Tax Status........................ The anticipated federal income tax consequences of the
purchase, ownership and disposition of Securities issued
by a Trust will be discussed in the related Prospectus
Supplement. See "Certain Federal Income Tax
Consequences" herein and in the related Prospectus
Supplement.
ERISA Considerations.............. Subject to the considerations discussed under "ERISA
Considerations" herein and in the related Prospectus
Supplement, and unless otherwise specified in the
related Prospectus Supplement, the Notes will be
eligible for purchase by employee benefit plans. The
related Prospectus Supplement will provide further
information with respect to the eligibility of a class
of Certificates for purchase by employee benefit plans.
See "ERISA Considerations" herein and in the related
Prospectus Supplement.
Rating............................ Unless otherwise provided in the related Prospectus
Supplement, as a condition of issuance, the Securities
of each series will be rated in one of the four highest
rating categories by at least one nationally recognized
rating agency (a "Rating Agency"). There is no assurance
that the ratings initially assigned to such Securities
will not be subsequently lowered or withdrawn by the
Rating Agencies. In the event the rating initially
assigned to any Securities is subsequently lowered for
any reason, no person or entity will be obligated to
provide any credit enhancement in addition to the credit
enhancement, if any, specified in the related Prospectus
Supplement.
Registration of Securities........ Unless otherwise specified in the related Prospectus
Supplement, the Certificates, if any, and the Notes, if
any, of each series will be registered in the name of
Cede & Co., as the nominee of DTC, and will be available
for purchase only in book-entry form on the records of
DTC and participating members thereof. Certificates and
Notes will be issued in definitive form only under the
limited circumstances described herein. All references
herein to "Holders" or "Certificateholders" or
"Noteholders" shall reflect the rights of beneficial
owners of Certificates (the "Certificate Owners") or of
Notes ("Note Owners"), as the case may be, as they may
indirectly exercise such rights through DTC and
participating members thereof, except as otherwise
specified herein or in the related Prospectus
Supplement. See "Description of the Purchase Agreements
and the Trust Documents-Book-Entry Registration."
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RISK FACTORS
IMPACT OF PORTFOLIO GROWTH AND PRODUCT MIX
Arcadia Financial has experienced rapid growth in its loan servicing
portfolio, although the rate of such growth has slowed in the past year.
Historically, the statistical incidence of delinquencies and defaults in
connection with automobile loans tends to vary over the age of the loan. For
example, statistically, loans that are between six and fourteen months old have
had a higher likelihood of being delinquent or defaulting than loans with
similar credit characteristics that are three months old. Accordingly, to the
extent that portfolio growth results in a servicing portfolio containing
disproportionately more loans originated within the prior six months, the
current and historical delinquency and default rates of loans in the servicing
portfolio may understate future delinquency and default rates. Also, there can
be no assurance that Arcadia Financial's transition from centralized to regional
servicing and collection will not adversely affect the rate of loan
delinquencies and defaults.
In addition, to the extent Arcadia Financial offers new loan products which
involve different underwriting policies, the delinquency and default rates of
Arcadia Financial's servicing portfolio may change. Arcadia Financial has
instituted a tiered pricing system and has periodically increased the authorized
amount of loans purchased under its Classic program involving borrowers who do
not meet all of the underwriting standards in Arcadia Financial's Premier
program and are charged rates of interest higher than those under Arcadia
Financial's Premier program. Arcadia Financial increased its purchase of loans
under the Classic program from 17% of the principal amount of loans purchased in
1995 to 36% in 1996 and to 55% in 1997. As a result of the increases in Classic
loans as a proportion of Arcadia Financial's portfolio, there has been an
increase in the rates of, and reserves for, delinquencies, repossessions and
losses historically reported by Arcadia Financial. The expansion of the Classic
loan program and seasoning of Arcadia Financial's existing servicing portfolio
will likely continue to cause Arcadia Financial's loan performance statistics to
show higher delinquencies, gross charge-offs and net losses when compared with
historical performance even if such loan performance statistics are consistent
with Arcadia Financial's reserves for loan losses.
To estimate future delinquency, repossession and loss experience on its
loans, Arcadia Financial uses a combination of factors, including actual loan
performance experience for that loan program, and industry experience on loans
with similar credit characteristics. However, there can be no assurance that its
loans will perform under varying economic conditions in the manner estimated by
Arcadia Financial. Any increase in delinquency, repossession and loss rates
related to its loans above the rates estimated by Arcadia Financial could have a
material adverse effect on Arcadia Financial's business, financial condition and
results of operations, as well as its liquidity. In addition, certain of Arcadia
Financial's loan products which produce higher delinquency, repossession and
loss rates than initially expected may continue to have an impact on Arcadia
Financial's overall loan performance, even after being discontinued or modified,
until the initially generated loans mature beyond the six- to fourteen-month
period. In 1996, Arcadia Financial discontinued a Classic loan product directed
at first-time credits and modified a Classic program for financing the sale of
its repossessed inventory in retail markets, each of which had experienced
higher than expected delinquency, repossession and loss rates.
CERTAIN LEGAL ASPECTS
With respect to each series of Securities, the transfer of the Receivables
to the related Trust will be subject to the requirements of the Uniform
Commercial Code (the "UCC") as in effect in Minnesota and New York. The Seller
will take or cause to be taken such action as is required to perfect the Trust's
rights in the Receivables. Although a Custodian (as specified in the related
Prospectus Supplement) may initially hold the Receivable Files (as defined
below), the Owner Trustee may subsequently appoint Arcadia Financial, with the
consent of the Security Insurer, if any (prior to an Insurer Default) and
subject to the conditions, if any, specified in the related Prospectus
Supplement or the related Trust Documents, as
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custodian to hold the Receivable Files for the Trust. In any event, the
Receivable Files will not be stamped or otherwise marked to indicate their sale
to the Trust. Accordingly, there exists a risk that, through fraud or
negligence, a purchaser could acquire an interest in the Receivables superior to
the interest of the Trust or that the Trust's security interest in the
Receivables could be released.
Due to the administrative burden and expense, the certificates of title for
the Financed Vehicles will not be amended to reflect the assignment of the
security interests in the Financed Vehicles by Arcadia Financial to the Seller,
or by the Seller to the Owner Trustee. In the absence of such an amendment, the
Owner Trustee may not have a perfected security interest in the Financed
Vehicles. Moreover, statutory liens for repairs or unpaid taxes may have
priority even over perfected security interests in the Financed Vehicles. See
"Description of the Purchase Agreements and the Trust Documents-Sale and
Assignment of the Receivables" and "Certain Legal Aspects of the Receivables."
INSOLVENCY RISKS
Arcadia Financial intends that any transfer of Receivables to the Seller
will constitute a sale, rather than a pledge of the Receivables to secure
indebtedness of Arcadia Financial. However, if Arcadia Financial were to become
a debtor under the federal bankruptcy code or similar applicable state laws
(collectively, "Insolvency Laws"), a creditor or trustee in bankruptcy of
Arcadia Financial or Arcadia Financial as debtor-in-possession might argue that
such sale of Receivables by Arcadia Financial was a pledge of the Receivables
rather than a sale. This position, if presented to or accepted by a court, could
cause, among other things, the related Trust to experience a delay in or
reduction of collections on the Receivables.
In addition, if Arcadia Financial were to become a debtor under any
Insolvency Law, a creditor or trustee in bankruptcy of Arcadia Financial or
Arcadia Financial as debtor-in-possession might argue that the assets and
liabilities of the Seller should be consolidated with the assets and liabilities
of Arcadia Financial. The Seller has taken and will take steps in structuring
the transactions contemplated hereby and by the related Prospectus Supplement
that are intended to make it unlikely that any such attempt to consolidate the
Seller and Arcadia Financial would succeed. See "The Seller." In addition, the
Seller intends that any transfer of Receivables to a Trust will constitute a
sale, rather than a pledge of the Receivables to secure indebtedness of the
Seller. Nevertheless, if these positions-that the assets and liabilities of the
Seller should be consolidated with those of Arcadia Financial, and that the
Seller's transfer of the Receivables was a pledge rather than a sale-were
presented to or accepted by a court, a Trust could experience, among other
things, a delay in or reduction of collections on the Receivables.
A case recently decided by the United States Court of Appeals for the Tenth
Circuit contains language to the effect that accounts sold by an entity that
subsequently became bankrupt remained property of the debtor's bankruptcy
estate. Although the Receivables constitute chattel paper rather than accounts
under the UCC, sales of chattel paper, like sales of accounts, are governed by
Article 9 of the UCC. If Arcadia Financial were to become a debtor under any
Insolvency Law and a court were to follow the reasoning of the Tenth Circuit
Court of Appeals and apply such reasoning to chattel paper, a Trust could
experience a delay in or reduction of collections on the Receivables.
SUBORDINATION; LIMITED ASSETS
To the extent specified in the related Prospectus Supplement, distributions
of interest and principal on the Certificates (if any) of such series may be
subordinated in priority of payment to interest and principal due on the Notes
(if any) of such series and/or to distributions of interest and principal on
other classes of Certificates of such series. In addition, holders of certain
classes of Securities of any series may have the right to take actions that are
detrimental to the interests of the holders of Securities of certain other
classes of Securities of such series. Moreover, no Trust will have any
significant assets or sources of funds other than the Receivables and, to the
extent provided in the related Prospectus Supplement, a Pre-Funding
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Account and any credit enhancement specified in the related Prospectus
Supplement. The Notes, if any, of any series will represent obligations solely
of, and the Certificates, if any, of such series will represent interests solely
in, the related Trust, and neither the Notes nor the Certificates of any such
series will be insured or guaranteed by the Seller, the Servicer, the applicable
Owner Trustee, the applicable Indenture Trustee or, except as specified in the
related Prospectus Supplement, any other person or entity. Consequently, holders
of the Securities of any series must rely for payment upon payments on the
related Receivables and, if and to the extent available, amounts on deposit in
the Pre-Funding Account, if any, and any credit enhancement, if any, as
specified in the related Prospectus Supplement.
YIELD AND PREPAYMENT CONSIDERATIONS
The weighted average life of the Securities will be reduced by full or
partial prepayments on the Receivables. The Receivables will generally be
prepayable at any time without penalty. Prepayments (or, for this purpose,
equivalent payments to the related Trust) may result from payments by Obligors,
liquidations due to default, the receipt of proceeds from physical damage or
credit insurance, repurchases by Arcadia Financial as a result of certain
uncured breaches of the warranties made by it with respect to the Receivables
("Warranty Receivables"), purchases by the Servicer as a result of certain
uncured breaches of the covenants made by it with respect to the Receivables
("Administrative Receivables") in the related Agreement, or either of the Seller
or the Servicer exercising its option to purchase all of the remaining
Receivables.
Unless otherwise specified in the related Prospectus Supplement, the amounts
paid to Securityholders in respect of principal on any Distribution Date or
Payment Date will include all prepayments on the Receivables during the
corresponding Monthly Periods. The Certificateholders and the Noteholders will
bear all reinvestment risk resulting from the timing of payments of principal on
the Securities.
LIMITED LIQUIDITY
There is currently no market for the Securities of any series. There can be
no assurance that any such market will develop or, if it does develop, that it
will provide Securityholders with liquidity of investment or will continue for
the life of the Securities. The Securities will not be listed on any securities
exchange.
Unless otherwise specified in the related Prospectus Supplement, the
Securities will be issued in book-entry, rather than physical, form and, as a
result, in certain circumstances, the liquidity of the Securities in the
secondary market and the ability of the Certificate Owners and Note Owners to
pledge them may be adversely affected. See "Plan of Distribution" and "Certain
Information Regarding the Securities-Book-Entry Registration."
THE TRUSTS
With respect to each series of Securities, the Seller will establish a Trust
pursuant to the related Trust Documents. Prior to the sale and assignment of the
related Receivables pursuant to the related Trust Documents, the Trust will have
no assets or obligations. The Trust will not engage in any business activity
other than acquiring and holding the Trust Property, issuing the Certificates,
if any, and the Notes, if any, of such series and distributing payments thereon.
Each Certificate, if any, will represent a fractional undivided interest in,
and each Note, if any, will represent an obligation of, the related Trust. The
Trust Property of each Trust will include, among other things, (i) a Receivables
Pool; (ii) all monies paid or payable thereon after the Cutoff Date (as
specified in the related Prospectus Supplement); (iii) such amounts as from time
to time may be held in the Lockbox Account (as defined herein), the Collection
Account (including all investments in the Collection Account and all income from
the investment of funds therein and all proceeds thereof) and certain other
accounts (including the proceeds thereof); (iv) an assignment of the security
interests of Arcadia Financial in the Financed Vehicles securing the related
Receivables; (v) an assignment of the right to receive proceeds
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from the exercise of rights against Dealers under agreements between Arcadia
Financial and such Dealers (the "Dealer Agreements") and the assignment of
rights in respect of each related Receivable from the applicable Dealer to
Arcadia Financial (the "Dealer Assignments"); (vi) an assignment of the right to
receive proceeds from claims on certain insurance policies covering the related
Financed Vehicles or Obligors; (vii) an assignment of the rights of the Seller
under the related Purchase Agreement, and (viii) certain other rights under the
related Trust Documents. See "The Receivables" and "Description of the Purchase
Agreements and the Trust Documents-Collections." The Trust Property will also
include, if so specified in the related Prospectus Supplement, monies on deposit
in a Pre-Funding Account to be established with the Indenture Trustee or the
Owner Trustee, which will be used to purchase Subsequent Receivables from the
Seller from time to time (and as frequently as daily) during the Pre-Funding
Period specified in the related Prospectus Supplement. Any Subsequent
Receivables so purchased will be included in the related Receivables Pool
forming part of the Trust Property, subject to the prior rights of the related
Indenture Trustee and the Noteholders therein. In addition, to the extent
specified in the related Prospectus Supplement, a financial guaranty insurance
policy or some other form of credit enhancement may be issued to or held by the
Owner Trustee or the Indenture Trustee for the benefit of holders of one or more
classes of Securities.
The Servicer will service the Receivables held by each Trust and will
receive fees for such services. See "Description of the Purchase Agreements and
the Trust Documents-Servicing Compensation." Unless otherwise specified in the
related Prospectus Supplement, Arcadia Financial, on behalf of each Trust, will
hold the original installment sales contract or promissory note as well as
copies of documents and instruments relating to each Receivable and evidencing
the security interest in the Financed Vehicle securing each Receivable (the
"Receivable Files"). In order to protect the Trust's ownership interest in the
Receivables, Arcadia Financial and the Seller will each file a UCC-1 financing
statement in Minnesota to give notice of such Trust's ownership of the related
Receivables and the related Trust Property.
THE OWNER TRUSTEE
The Owner Trustee for each Trust will be specified in the related Prospectus
Supplement. The Owner Trustee's liability in connection with the issuance and
sale of the Securities of such series will be limited solely to the express
obligations of such Owner Trustee set forth in the related Trust Documents. An
Owner Trustee may resign at any time, in which event the General Partner, if
any, specified in the related Prospectus Supplement, or if no such General
Partner is specified, the Servicer or its successor, will be obligated to
appoint a successor trustee acceptable to the Security Insurer. The General
Partner, if any, specified in the related Prospectus Supplement, or if no such
General Partner is specified, the Servicer, with the consent of the Security
Insurer, if any (prior to an Insurer Default), may also remove the Owner Trustee
if the Owner Trustee ceases to be eligible to continue as Owner Trustee under
the related Trust Documents or if the Owner Trustee becomes insolvent. In such
circumstances, the General Partner, if any, specified in the related Prospectus
Supplement, or if no such General Partner is specified, the Servicer will be
obligated to appoint a successor trustee acceptable to the Security Insurer. Any
resignation or removal of an Owner Trustee and appointment of a successor
trustee will be subject to any conditions or approvals specified in the related
Prospectus Supplement and will not become effective until acceptance of the
appointment by the successor trustee.
THE RECEIVABLES
GENERAL
Arcadia Financial purchases retail installment sales contracts and
promissory notes secured by new and used motor vehicles from Dealers who
regularly originate and sell such contracts and notes to Arcadia Financial.
Arcadia Financial generally acquires each such contract or note (a "Loan") under
a Dealer Agreement and a Dealer Assignment which obligate the Dealer to
repurchase the Loan in the event of a breach by the Dealer of certain
representations and warranties made therein. These representations and
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warranties typically relate to the origination of the Loan and the security
interest in the related Financed Vehicle. The Dealers' representations and
warranties do not relate to the creditworthiness of the Obligor under the Loan
or the collectibility of the Loan and, accordingly, Arcadia Financial does not
have recourse to Dealers for credit losses on any Loans.
UNDERWRITING
Arcadia Financial purchases each Loan in accordance with its established
underwriting procedures. Arcadia Financial's underwriting procedures include
scoring the borrower's loan application in accordance with Arcadia Financial's
proprietary credit scoring system and comparing such credit scores to
established underwriting criteria. For borrowers with credit scores falling
outside predetermined criteria, Arcadia Financial requires additional review and
approval by supervisory personnel in order to determine whether to approve such
loans. These procedures are intended to assess the applicant's ability to repay
the amounts due on the loan and the adequacy of the financed vehicle as
collateral. Arcadia Financial's underwriting procedures do not distinguish
between new and used vehicles. Arcadia Financial maintains a tiered pricing
system, allowing it to price loans according to the borrower's credit
characteristics. Arcadia Financial markets its loan products to dealers under
two programs, designated Premier and Classic. "Premier" and "Classic" are
proprietary trademarks of Arcadia Financial. Premier borrowers generally have
stronger credit characteristics than those of Classic borrowers. At December 31,
1997, Arcadia Financial was purchasing approximately 70% of its aggregate loans
under each of the Classic and the Premier programs. Arcadia Financial may change
its loan purchase mix at any time and from time to time. Arcadia Financial
considers substantially all of the loans it purchases under both the Premier and
Classic programs to be in the "prime" or "non-prime" loan categories, but does
not consider the loans it purchases to be in the "sub-prime" loan category.
Each applicant for a loan is required to complete and sign an application
which lists the applicant's assets, liabilities, income, credit and employment
history and other personal information. Upon receipt of the completed loan
application, Arcadia Financial's administrative personnel order a credit bureau
report on the applicant to document the applicant's credit history. The
application and the credit bureau report are given to one of Arcadia Financial's
credit specialists for analysis under Arcadia Financial's proprietary credit
scoring system.
Arcadia Financial's credit scoring system evaluates the credit applicant
with an emphasis on cash flow as a principal indicator of repayment capability
and provides credit scores which are utilized by Arcadia Financial as a basis to
determine if the applicant initially falls within the parameters of Arcadia
Financial's underwriting criteria for a particular loan product. Assuming that
the applicant qualifies, Arcadia Financial will expand its credit review by
preparing an analysis of the applicant's debt-to-income and payment-to-income
ratios, and purchasing from a credit bureau an additional credit score which
attempts to assess the likelihood of borrower bankruptcies. If the applicant
meets Arcadia Financial's underwriting standards, Arcadia Financial generally
will approve the application. For Classic borrowers (and, if certain scoring
criteria are not satisfied, for Premier borrowers), this data is subject to
further investigation. This investigation typically consists of direct telephone
confirmations, when feasible, of the applicant's employment and may also include
direct credit references from banks and financial institutions noted on the
application.
Once scoring and verifications have been completed, one of Arcadia
Financial's credit specialists reviews the application to ensure that it meets
the requirements of Arcadia Financial's internal system and also reviews the
various banking and employment verifications obtained. The credit specialist
also considers the amount to be financed in relation to the purchase price and
market value of the automobile. If the vehicle is used, Arcadia Financial
determines market value based upon the Kelly Blue Book value or the National
Automobile Dealers Association's ("NADA") Guide on Retail and Wholesale Values.
Consistent with industry standards, this assessment does not include inspection
of the automobile. Arcadia Financial does not reject an applicant solely because
of the age of the automobile.
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Objective credit scoring criteria provide the factual background for lending
decisions, but such decisions frequently require the credit judgment of Arcadia
Financial's credit specialists. To the extent an applicant fails to meet one or
more of the scoring benchmarks for the proposed loan, Arcadia Financial requires
higher levels of management scrutiny before such loans are approved. In 1996, a
substantial majority of Classic loans and a substantial number of Premier loans
purchased by Arcadia Financial failed to meet at least one applicable scoring
benchmark and required additional management review before approval of these
loans.
Upon completion of the credit analysis, Arcadia Financial decides whether it
will approve, conditionally approve or deny the loan application as submitted.
Conditioning approval of the application involves amending the dealer's proposed
terms of the loan to qualify the application according to Arcadia Financial's
procedures. Typical conditions include, but are not limited to, requiring a
co-applicant, amending the length of the proposed term, requiring additional
down payment, substantiating certain credit information, or requiring proof of
resolution of certain credit deficiencies as noted on the applicant's credit
history. Approved, declined or conditioned application decisions are promptly
communicated to the dealer by phone or facsimile. Additionally, the applicant is
informed by Arcadia Financial of any credit denial or other adverse action by
mail, in compliance with applicable statutory requirements.
Arcadia Financial regularly reviews the quality of the loans it purchases
and conducts internal compliance reviews on a monthly basis.
SERVICING
Arcadia Financial, as the initial Servicer, will be responsible for
managing, administering, servicing and making collections on the Receivables
held by each Trust. In response to the rapid growth of its servicing portfolio,
continued expansion of its Classic program (which generally requires greater
collection efforts than its Premier program), and increases in delinquencies and
default rates on its servicing portfolio, Arcadia Financial substantially
increased its servicing and collection staff and, in October 1996, implemented a
strategy to regionalize its servicing and collection activities into four new
locations: Charlotte, North Carolina; Dallas, Texas; Denver, Colorado and
Minneapolis, Minnesota. At December 31, 1997, Arcadia Financial employed more
than 800 service representatives and collection associates who are responsible
for various aspects of the collection and repossession procedures, compared with
510 and 188 at December 31, 1996 and 1995, respectively. Arcadia Financial also
substantially expanded the capacity of its highly automated telephone dialing
systems (the "autodialer") in connection with its establishment of four regional
servicing and collection centers. In addition, Arcadia Financial uses a
computerized collection system to aid its service and collection associates.
Arcadia Financial regularly evaluates its servicing staffing needs based on
anticipated growth in its servicing portfolio and estimated delinquency and
repossession rates.
Arcadia Financial generally utilizes the autodialer initially to contact
delinquent obligors. Based on parameters established by Arcadia Financial for
each of its loan programs, the autodialer will phone the obligor within five to
ten days after a past due date. Once the call is answered, the autodialer will
immediately transfer the call to an available customer service representative
located in one of Arcadia Financial's four regional service and collection
centers and will automatically display the obligor's loan information on the
representative's computer screen. The autodialer will continue to follow up with
obligors at various times throughout the first 30 days after a past due date
(typically every third day) if previous efforts do not result in the account
deficiency being cured. In addition to telephone inquiries, Arcadia Financial's
computerized collection system generates past due notices which are mailed to
the obligor at various intervals during the first 30 days after a past due date.
The first such correspondence is generally sent approximately 13 days after a
past due date.
If the collection effort during the first 30 days after a past due date does
not result in a satisfactory resolution of the delinquent account, then the
account is forwarded to collection specialists. These
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collection specialists will typically send a final demand letter to the
delinquent obligor allowing the obligor a specified number of days to bring the
account current. During this period, the collection specialist generally will
make a recommendation as to whether the automobile should be repossessed or
other action, such as a contract extension, should be taken.
Arcadia Financial follows specific procedures with respect to contract
extensions. Generally, an extension requires special circumstances, is based on
a re-evaluation of the Obligor's creditworthiness, and requires approval by a
collection department manager. Under the Trust Documents, unless otherwise
specified in the related Prospectus Supplement, the Servicer will not be
permitted to extend the monthly payments of a Receivable more than a maximum of
two times in any twelve-month period, six months in the aggregate, and in no
event later than the month preceding the Final Scheduled Distribution Date (as
specified in the related Prospectus Supplement). Subject to certain limited
exceptions set forth in the Trust Documents, the Servicer cannot, without the
consent of the Security Insurer, if any (prior to an Insurer Default), unless
otherwise specified in the Trust Documents, otherwise agree to amend or modify
any Receivable. If an Insurer Default occurs, subject to certain limited
exceptions, amendments and modifications of the Receivables will not be
permitted. See "Description of the Purchase Agreements and the Trust
Documents-Servicing Procedures."
Arcadia Financial uses unaffiliated independent contractors to perform
repossessions. Once a Financed Vehicle is repossessed, a letter is sent giving
the Obligor a specified number of days to redeem the Financed Vehicle in
accordance with state law. At the expiration of the time period, Arcadia
Financial will determine the method of sale and will repair (if necessary) and
prepare the Financed Vehicle for sale. Arcadia Financial has historically sold
repossessed Financed Vehicles through wholesale auto auctions and retail
consignment lots. Although Arcadia Financial has historically liquidated a
substantial portion of its repossessed inventory through retail consignment
lots, Arcadia Financial determined in 1997 that its retail distribution channels
were not sufficient to liquidate vehicles at a satisfactory pace and therefore
decided to sell an increased proportion of repossessed vehicles through
wholesale auctions. Arcadia Financial expects to continue to control the size
and cost of its repossessed inventory by continuing to increase the use of
wholesale auctions to dispose of repossessed vehicles. Arcadia Financial has a
remarketing department responsible for the management of its repossession
inventory, which decides whether to sell each vehicle repossessed in the retail
or wholesale market, manages reconditioning and repairs when necessary, tracks
vehicles until sold and selects and monitors the retail consignment lots used by
Arcadia Financial. At December 31, 1997, Arcadia Financial had arrangements with
60 retail consignment lots compared to 60 at December 31, 1996 and 10 at
December 31, 1995. Any surplus proceeds received from the sale of the Financed
Vehicle (net of all collection, repossession and disposition expenses) over the
balance of the Loan will be remitted to the Obligor.
The present policy of Arcadia Financial is to charge off a Loan on the
earlier of the date on which (i) the Loan becomes 90 days delinquent or (ii) the
related Financed Vehicle is repossessed and sold. Notwithstanding this policy,
Arcadia Financial may elect not to charge off a Loan that is 90 days delinquent
if Arcadia Financial determines that it is likely to recover on a later date all
or a portion of the outstanding Loan balance upon repossession and sale, in
which case the Loan will be charged off when the related Financed Vehicle has
been repossessed and sold. Unless otherwise specified in the related Prospectus
Supplement, the related Trust Documents will define a "Liquidated Receivable" as
a Receivable as to which (i) the Servicer has repossessed the Financed Vehicle
and all applicable redemption periods have expired, (ii) the Servicer has
determined in good faith that all amounts it expects to recover have been
received or (iii) any scheduled payment thereon (a "Scheduled Payment") or any
portion thereof has become more than 180 days past due.
INSURANCE
Arcadia Financial requires each Obligor to obtain a physical damage
insurance policy naming Arcadia Financial as loss payee with respect to the
Financed Vehicle. If any Obligor is in default in the payment of
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a premium on such an insurance policy, Arcadia Financial may obtain a
replacement policy, paying the premium out of its own funds, and may require the
Obligor to pay such premium pursuant to an obligation separate from the contract
or note evidencing the related Loan.
DELINQUENCY, LOAN LOSS AND REPOSSESSION INFORMATION
Certain information relating to Arcadia Financial's delinquency, loan loss
and repossession experience with respect to all Loans it has purchased and
continues to service will be set forth in each Prospectus Supplement. This
information will include the experience with respect to all Loans in Arcadia
Financial's portfolio of Loans serviced, including Loans which do not meet the
criteria for selection as a Receivable for any particular Receivables Pool.
There can be no assurance that the delinquency, loan loss and repossession
experience on any Receivables Pool will be comparable to prior experience.
SELECTION CRITERIA AND CERTAIN OTHER CHARACTERISTICS
Information with respect to each Receivables Pool will be set forth in the
related Prospectus Supplement, including, to the extent appropriate, the
criteria used to select the related Receivables and the composition,
distribution by annual percentage rate ("APR") and geographic concentration of
such Receivables.
YIELD AND PREPAYMENT CONSIDERATIONS
Unless otherwise specified in the related Prospectus Supplement, the
Receivables will be simple interest retail installment sales contracts and
promissory notes. Payments on simple interest obligations are applied first to
interest accrued through the payment date, and the remainder is applied to
reduce the unpaid principal balance. Accordingly, if an Obligor pays an
installment before its due date, the portion of the payment allocable to
interest for the period will be less than if the payment had been made on the
due date, the portion of the payment applied to reduce the principal balance
will be correspondingly greater, and the principal balance will be amortized
more rapidly than scheduled. Conversely, if an Obligor pays an installment after
its due date, the portion of the payment allocable to interest will be greater
than if the payment had been made on the due date, the portion of the payment
applied to reduce the principal balance will be correspondingly less, and the
principal balance will be amortized slower than scheduled, in which case a
larger portion of the principal balance may be due on the final scheduled
payment date. Any interest shortfalls resulting from early payment or prepayment
of a Receivable will be funded by collections on other Receivables or, to the
extent collections are insufficient, by payments under the Policy, if any, or
other applicable form of credit enhancement, if any, described in the related
Prospectus Supplement.
A substantial portion of the Receivables will be prepayable, without premium
or penalty, by Obligors at any time. Prepayments (or, for this purpose,
equivalent payments to a Trust) also may result from liquidations due to
default, receipt of proceeds from insurance policies, repurchases by Arcadia
Financial of Warranty Receivables, purchases by the Servicer of Administrative
Receivables or as a result of the Seller or the Servicer exercising its option
to purchase the Receivables Pool. See "Description of the Purchase Agreements
and the Trust Documents." The rate of prepayments on the Receivables may be
influenced by a variety of economic, social and other factors. While Arcadia
Financial does not maintain specific records for this purpose, it estimates
that, based on its experience over the past four years, the monthly prepayment
rate on the outstanding principal amount of the motor vehicle installment sales
contracts it has originated and serviced, for itself and others, has been
approximately 1.5%. However, no assurance can be given that the Receivables
included in any Receivables Pool will experience this rate of prepayment or any
greater or lesser rate. No assurance can be given that prepayments on the
Receivables will conform to any estimated or actual historical experience, and
no prediction can be made as to the actual prepayment rates which will be
experienced on the Receivables. Certificateholders and Noteholders will bear all
reinvestment risk resulting from the timing of payments of principal on the
Certificates or the Notes, as the case may be.
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If so specified in the related Prospectus Supplement, certain of the
Receivables included in a Receivables Pool may provide for level monthly
payments during the scheduled term of the Receivable but a substantially larger
final payment at the scheduled maturity of the Receivable (each a "Balloon
Payment Receivable"). Although it is likely that the inclusion of such Balloon
Payment Receivables in a Receivables Pool would affect the weighted average
lives of the related Securities, no prediction can be made as to the nature or
magnitude of such effect.
POOL FACTOR
The "Certificate Pool Factor" for each class of Certificates, if any, will
be an eight-digit decimal which the Servicer will compute indicating the
Certificate Balance with respect to such Certificates as of each Distribution
Date (after giving effect to all distributions of principal made on such
Distribution Date), as a fraction of the Cutoff Date Certificate Principal
Balance. The "Note Pool Factor" for each class of Notes, if any, will be an
eight-digit decimal which the Servicer will compute indicating the remaining
outstanding principal balance with respect to such Notes as of each Payment Date
(after giving effect to all distributions of principal on such Payment Date) as
a fraction of the initial outstanding principal balance of such class of Notes.
Each Certificate Pool Factor and each Note Pool Factor will initially be
1.00000000; thereafter, the Certificate Pool Factor and the Note Pool Factor
will decline to reflect reductions in the Certificate Balance of the applicable
class of Certificates or reductions in the outstanding principal balance of the
applicable class of Notes, as the case may be. The amount of a
Certificateholder's pro rata share of the Certificate Balance for the related
class of Certificates can be determined by multiplying the original denomination
of the Certificateholder's Certificate by the then applicable Certificate Pool
Factor. The amount of a Noteholder's pro rata share of the aggregate outstanding
principal balance of the applicable class of Notes can be determined by
multiplying the original denomination of such Noteholder's Note by the then
applicable Note Pool Factor.
With respect to each Trust and pursuant to the related Trust Documents, on
each Distribution Date or Payment Date, as the case may be, the
Certificateholders and the Noteholders will receive periodic reports from the
Owner Trustee stating the Certificate Pool Factor or the Note Pool Factor, as
the case may be, and containing various other items of information. Unless and
until Definitive Certificates or Definitive Notes are issued, such reports will
be sent on behalf of the Trust to the Owner Trustee and the Indenture Trustee
and Cede & Co., as registered holder of the Certificates and the Notes and the
nominee of DTC. Certificate Owners and Note Owners may receive such reports,
upon written request, together with a certification that they are Certificate
Owners or Note Owners and payment of any expenses associated with the
distribution of such reports, from the Owner Trustee and the Indenture Trustee
at the addresses specified in the related Prospectus Supplement. See "Certain
Information Regarding the Securities-Statements to Securityholders."
USE OF PROCEEDS
Unless otherwise specified in the related Prospectus Supplement, the net
proceeds to be received by the Seller from the sale of each series of Securities
will be used to pay to Arcadia Financial the purchase price for the Receivables
and to make the deposit of the Pre-Funded Amount into the Pre-Funding Account,
if any, to repay warehouse lenders and/or to provide for other forms of credit
enhancement specified in the related Prospectus Supplement. The net proceeds to
be received by Arcadia Financial will be used to pay its warehouse loans, and
any additional proceeds will be added to Arcadia Financial's general funds and
used for its general corporate purposes. See "Arcadia Financial Ltd."
THE SELLER
The Seller, a wholly owned subsidiary of Arcadia Financial Ltd., was
incorporated in the State of Delaware on February 3, 1993. The Seller has been
organized for the limited purposes of purchasing receivables from Arcadia
Financial Ltd. and transferring such receivables to trusts such as the Trusts
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described herein and any activities incidental to and necessary or convenient
for the accomplishment of such purposes. The principal executive offices of the
Seller are located at 7825 Washington Avenue South, Suite 410, Minneapolis,
Minnesota 55439-2435, and its telephone number is (612) 942-9880.
The Seller has taken and will take steps in structuring the transactions
contemplated hereby and in the related Prospectus Supplement that are intended
to make it unlikely that a voluntary or involuntary application for relief by
Arcadia Financial under any Insolvency Law will result in consolidation of the
assets and liabilities of the Seller with those of Arcadia Financial. These
steps include the creation of the Seller as a separate, limited-purpose
subsidiary pursuant to a Certificate of Incorporation containing certain
limitations (including restrictions on the nature of the Seller's business and a
restriction on the Seller's ability to commence a voluntary case or proceeding
under any Insolvency Law without the unanimous affirmative vote of all of its
directors and the holders of at least 66 2/3% of its outstanding common stock).
The Seller's Certificate of Incorporation includes a provision that requires the
Seller to have at least one director who qualifies under the Certificate of
Incorporation as an "Independent Director." The Seller has no intention of
filing a voluntary petition under Insolvency Laws unless its own financial
affairs merit such action.
ARCADIA FINANCIAL LTD.
Arcadia Financial purchases, securitizes and services consumer automobile
loans originated primarily by new car dealers affiliated with major foreign and
domestic manufacturers. Arcadia Financial provides an alternative and
independent source of financing to automobile dealers for their customers'
purchases of new and used automobiles. Arcadia Financial attempts to meet the
needs of dealers through consistent underwriting and loan purchasing practices,
extended operating hours, competitive interest rates, a dedicated customer
service staff, fast turn-around of loan applications, promotions and systems
designed to expedite processing of loan applications.
Since Arcadia Financial's inception in March 1990, Arcadia Financial has
established 18 regional buying centers and expanded its dealer network to
include dealers in 45 states. Arcadia Financial's regional buying centers are
located in Phoenix, Arizona; Sacramento, California; San Diego, California;
Denver, Colorado; Orlando, Florida; Atlanta, Georgia; Baltimore, Maryland;
Boston, Massachusetts; Minneapolis, Minnesota; St. Louis, Missouri; Buffalo, New
York; Charlotte, North Carolina; Cincinnati, Ohio; Nashville, Tennessee; Dallas,
Texas; Houston, Texas; San Antonio, Texas; and Seattle, Washington.
Arcadia Financial purchases a Loan from a dealer only after Arcadia
Financial has reviewed and approved a customer's credit application in
accordance with Arcadia Financial's underwriting policies and procedures. See
"The Receivables-Underwriting." Arcadia Financial accumulates the automobile
loans it purchases and then sells them to a trust, which in turn sells
asset-backed securities to investors (a "securitization"). Prior to each
securitization, Arcadia Financial funds the acquisition of loans primarily
through warehouse facilities with financial institutions and institutional
lenders.
Arcadia Financial is a Minnesota corporation. Arcadia Financial's principal
executive offices are located at Arcadia Financial Center, 7825 Washington
Avenue South, Minneapolis, Minnesota 55439-2435, and its telephone number is
(612) 942-9880.
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THE CERTIFICATES
GENERAL
With respect to each Trust, one or more classes of Certificates of a given
series may be issued pursuant to Trust Documents to be entered into between the
Seller, Arcadia Financial and the Owner Trustee, forms of which have been filed
as exhibits to the Registration Statement of which this Prospectus forms a part.
The following summary does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all of the material provisions of the
Trust Documents. Where particular provisions of or terms used in the Trust
Documents are referred to, the actual provisions (including definitions of
terms) are incorporated by reference as part of this summary.
Unless otherwise specified in the related Prospectus Supplement, each class
of Certificates will initially be represented by a single Certificate registered
in the name of the nominee of DTC (together with any successor depository
selected by the Seller, the "Depository"). See "Certain Information Regarding
the Securities-Book-Entry Registration." Unless otherwise specified in the
related Prospectus Supplement, the Certificates evidencing interests in a Trust
will be available for purchase in denominations of $1,000 initial principal
amount and integral multiples thereof, except that one Certificate evidencing an
interest in such Trust may be issued in a denomination that is less than $1,000
initial principal amount. Certificates may be transferred or exchanged without
the payment of any service charge other than any tax or governmental charge
payable in connection with such transfer or exchange. Unless otherwise specified
in the related Prospectus Supplement, the Owner Trustee will initially be
designated as the registrar for the Certificates.
DISTRIBUTIONS OF INTEREST AND PRINCIPAL
The timing and priority of distributions, seniority, allocations of loss,
Pass-Through Rate and amount of or method of determining distributions with
respect to principal and interest (or, where applicable, with respect to
principal only or interest only) on the Certificates of any series will be
described in the related Prospectus Supplement. Distributions of interest on the
Certificates will be made on the dates specified in the related Prospectus
Supplement (each, a "Distribution Date") and, unless otherwise specified in the
related Prospectus Supplement, will be made prior to distributions with respect
to principal. A series may include one or more classes of Strip Certificates
entitled to (i) distributions in respect of principal with disproportionate,
nominal or no interest distribution, or (ii) interest distributions, with
disproportionate, nominal or no distributions in respect of principal. Each
class of Certificates may have a different Pass-Through Rate, which may be a
fixed, variable or adjustable Pass-Through Rate (and which may be zero for
certain classes of Strip Certificates), or any combination of the foregoing. The
related Prospectus Supplement will specify the Pass-Through Rate for each class
of Certificate, or the initial Pass-Through Rate and the method for determining
the Pass-Through Rate. Unless otherwise specified in the related Prospectus
Supplement, interest on the Certificates will be calculated on the basis of a
360-day year consisting of twelve 30-day months. Unless otherwise specified in
the related Prospectus Supplement, distributions in respect of the Certificates
will be subordinate to payments in respect of the Notes, if any, as more fully
described in the related Prospectus Supplement. Distributions in respect of
principal of any class of Certificates will be made on a pro rata basis among
all of the Certificateholders of such class.
In the case of a series of Certificates which includes two or more classes
of Certificates, the timing, sequential order, priority of payment or amount of
distributions in respect of principal, and any schedule or formula or other
provisions applicable to the determination thereof, of each such class shall be
as set forth in the related Prospectus Supplement.
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THE NOTES
GENERAL
A series of Securities may include one or more classes of Notes issued
pursuant to the terms of an Indenture, a form of which has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
Unless otherwise specified in the related Prospectus Supplement, no Notes will
be issued as a part of any series. The following summary does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all of the provisions of the Notes and the Indenture, and the following summary
may be supplemented or superseded in whole or in part by the related Prospectus
Supplement. Where particular provisions of or terms used in the Indenture are
referred to, the actual provisions (including definition of terms) are
incorporated by reference as part of this summary.
Unless otherwise specified in the related Prospectus Supplement, each class
of Notes will initially be represented by a single Note registered in the name
of the nominee of the Depository. See "Certain Information Regarding the
Securities-Book-Entry Registration." Unless otherwise specified in the related
Prospectus Supplement, Notes will be available for purchase in denominations of
$1,000 and integral multiples thereof. Notes may be transferred or exchanged
without the payment of any service charge other than any tax or governmental
charge payable in connection with such transfer or exchange. Unless otherwise
provided in the related Prospectus Supplement, the Indenture Trustee will
initially be designated as the registrar for the Notes.
PRINCIPAL AND INTEREST ON THE NOTES
The timing and priority of payment, seniority, allocations of loss, Interest
Rate and amount of or method of determining payments of principal and interest
on the Notes will be described in the related Prospectus Supplement. The right
of holders of any class of Notes to receive payments of principal and interest
may be senior or subordinate to the rights of holders of any class or classes of
Notes of such series, or any class of Certificates, as described in the related
Prospectus Supplement. Unless otherwise provided in the related Prospectus
Supplement, payments of interest on the Notes will be made prior to payments of
principal thereon. A series may include one or more classes of Strip Notes
entitled to (i) principal payments with disproportionate, nominal or no interest
payment, or (ii) interest payments with disproportionate, nominal or no
principal payments. Each class of Notes may have a different Interest Rate,
which may be a fixed, variable or adjustable Interest Rate (and which may be
zero for certain classes of Strip Notes), or any combination of the foregoing.
The related Prospectus Supplement will specify the Interest Rate for each class
of Notes, or the initial Interest Rate and the method for determining the
Interest Rate. One or more classes of Notes of a series may be redeemable under
the circumstances specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, payments in
respect of interest to Noteholders of all classes within a series will have the
same priority. Under certain circumstances, the amount available for such
payments could be less than the amount of interest payable on the Notes on any
of the dates specified for payments in the related Prospectus Supplement (each,
a "Payment Date"), in which case each class of Noteholders will receive their
ratable share (based upon the aggregate amount of interest due to such class of
Noteholders) of the aggregate amount available to be distributed in respect of
interest on the Notes.
In the case of a series of Securities which includes two or more classes of
Notes, the sequential order and priority of payment in respect of principal and
interest, and any schedule or formula or other provisions applicable to the
determination thereof, of each such class will be set forth in the related
Prospectus Supplement. Unless otherwise specified in the related Prospectus
Supplement, payments in respect of principal and interest of any class of Notes
will be made on a pro rata basis among all of the Notes of such class.
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THE INDENTURE
A form of Indenture has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. The Seller will provide a copy
of the applicable Indenture (without exhibits) upon request to a holder of Notes
issued thereunder.
MODIFICATION OF INDENTURE WITHOUT NOTEHOLDER CONSENT. Each Trust and
related Indenture Trustee (on behalf of such Trust) may, with the consent of the
Security Insurer, if any (prior to an Insurer Default), but without consent of
the related Noteholders, enter into one or more supplemental indentures for any
of the following purposes: (i) to correct or amplify the description of the
collateral or add additional collateral; (ii) to provide for the assumption of
the Note and the Indenture obligations by a permitted successor to the Trust;
(iii) to add additional covenants for the benefit of the related Noteholders, or
to surrender any rights or power conferred upon the Trust; (iv) to convey,
transfer, assign, mortgage or pledge any property to or with the Indenture
Trustee; (v) to cure any ambiguity or correct or supplement any provision in the
Indenture or in any supplemental indenture; (vi) to provide for the acceptance
of the appointment of a successor Indenture Trustee or to add to or change any
of the provisions of the Indenture or in any supplemental indenture which may be
inconsistent with any other provision of the Indenture as shall be necessary and
permitted to facilitate the administration by more than one trustee; (vii) to
modify, eliminate or add to the provisions of the Indenture in order to comply
with the Trust Indenture Act of 1939, as amended; and (viii) to add any
provisions to, change in any manner, or eliminate any of the provisions of, the
Indenture or modify in any manner the rights of Noteholders under such
Indenture; provided that any action specified in this clause (viii) shall not,
as evidenced by an opinion of counsel, adversely affect in any material respect
the interests of any related Noteholder unless Noteholder consent is otherwise
obtained as described below.
MODIFICATIONS OF INDENTURE WITH NOTEHOLDER CONSENT. With respect to each
Trust, with the consent of the Security Insurer, if any (prior to an Insurer
Default), and the holders representing a majority of the principal balance of
the outstanding related Notes (a "Note Majority"), the Owner Trustee and the
Indenture Trustee may execute a supplemental indenture to add provisions to
change in any manner or eliminate any provisions of, the related Indenture, or
modify in any manner the rights of the related Noteholders.
Without the consent of the Security Insurer, if any (prior to an Insurer
Default), and the holder of each outstanding related Note affected thereby,
however, no supplemental indenture may: (i) change the due date of any
installment of principal of or interest on any Note or reduce the principal
amount thereof, the interest rate specified thereon or the redemption price with
respect thereto or change the manner of calculating any such payment or any
place of payment where the coin or currency in which any Note or any interest
thereon is payable; (ii) impair the right to institute suit for the enforcement
of certain provisions of the Indenture regarding payment; (iii) reduce the
percentage of the aggregate amount of the outstanding Notes the consent of the
holders of which is required for any such supplemental indenture or the consent
of the holders of which is required for any waiver of compliance with certain
provisions of the Indenture or of certain defaults thereunder and their
consequences as provided for in the Indenture; (iv) modify or alter the
provisions of the Indenture regarding the voting of Notes held by the related
Trust, any other obligor on the Notes, the Seller or an affiliate of any of
them; (v) reduce the percentage of the aggregate outstanding amount of the Notes
the consent of the holders of which is required to direct the Indenture Trustee
to sell or liquidate the Receivables if the proceeds of such sale would be
insufficient to pay the principal amount and accrued but unpaid interest on the
outstanding Notes; (vi) decrease the percentage of the aggregate principal
amount of the Notes required to amend the sections of the Indenture which
specify the applicable percentage of aggregate principal amount of the Notes
necessary to amend the Indenture or certain other related agreements; or (vii)
permit the creation of any lien ranking prior to or on a parity with the lien of
the Indenture with respect to any of the collateral for the Notes or, except as
otherwise permitted or contemplated in the Indenture, terminate the lien of the
Indenture on any such collateral or deprive the holder of any Note of the
security afforded by the lien of the Indenture.
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EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT. With respect to each
Trust, unless otherwise specified in the related Prospectus Supplement, "Events
of Default" under the Indenture will consist of: (i) a default for five days or
more in the payment of any interest on any Note; (ii) a default in the payment
of the principal of or any installment of the principal of any Note when the
same becomes due and payable; (iii) a default in the observance or performance
in any material respect of any covenant or agreement of the Trust made in the
Indenture, or any representation or warranty made by the Trust in the Indenture
or in any certificate delivered pursuant thereto or in connection therewith
having been incorrect as of the time made, and the continuation of any such
default or the failure to cure such breach of a representation or warranty for a
period of 30 days after notice thereof is given to the Trust by the Indenture
Trustee or to the Trust and the Indenture Trustee by the holders of at least 25%
in principal amount of the Notes then outstanding; or (iv) certain events of
bankruptcy, insolvency, receivership or liquidation of the Trust. However, the
amount of principal due and payable on any class of Notes on any Payment Date
(prior to the Final Scheduled Payment Date, if any, for such class) will
generally be determined by amounts available to be deposited in the Note
Distribution Account for such Payment Date. Therefore, unless otherwise
specified in the related Prospectus Supplement, the failure to pay principal on
a class of Notes generally will not result in the occurrence of an Event of
Default unless such class of Notes has a Final Scheduled Payment Date, and then
not until such Final Scheduled Payment Date for such class of Notes.
Unless otherwise specified in the related Prospectus Supplement, if an Event
of Default should occur and be continuing with respect to the Notes of any
series, the related Indenture Trustee or a Note Majority may declare the
principal of the Notes to be immediately due and payable. Such declaration may,
under certain circumstances, be rescinded by a Note Majority.
Unless otherwise specified in the related Prospectus Supplement, if the
Notes of any series have been declared due and payable following an Event of
Default with respect thereto, the related Indenture Trustee may and, at the
direction of the Note Majority, shall institute proceedings to collect amounts
due or foreclose on Trust Property, exercise remedies as a secured party, sell
the related Receivables or elect to have the Trust maintain possession of such
Receivables and continue to apply collections on such Receivables as if there
had been no declaration of acceleration. Unless otherwise specified in the
related Prospectus Supplement, the Indenture Trustee, however, will be
prohibited from selling the related Receivables following an Event of Default,
unless (i) the holders of all the outstanding related Notes consent to such
sale; (ii) the proceeds of such sale are sufficient to pay in full the principal
of and the accrued interest on such outstanding Notes at the date of such sale;
or (iii) the Indenture Trustee determines that the proceeds of the Receivables
would not be sufficient on an ongoing basis to make all payments on the Notes as
such payments would have become due if such obligations had not been declared
due and payable, and the Indenture Trustee obtains the consent of the holders of
66 2/3% of the aggregate outstanding amount of the Notes. Unless otherwise
specified in the related Prospectus Supplement, following a declaration upon an
Event of Default that the Notes are immediately due and payable, (i) Noteholders
will be entitled to ratable repayment of principal on the basis of their
respective unpaid principal balances and (ii) repayment in full of the accrued
interest on and unpaid principal balances of the Notes will be made prior to any
further payment of interest or principal on the Certificates.
Subject to the provisions of the Indenture relating to the duties of the
Indenture Trustee, if an Event of Default occurs and is continuing with respect
to a series of Notes, the Indenture Trustee will be under no obligation to
exercise any of the rights or powers under the Indenture at the request or
direction of any of the holders of such Notes, if the Indenture Trustee
reasonably believes it will not be adequately indemnified against the costs,
expenses and liabilities which might be incurred by it in complying with such
request. Subject to the provisions for indemnification and certain limitations
contained in the Indenture, a Note Majority in a series will have the right to
direct the time, method and place of conducting any proceeding or any remedy
available to the Indenture Trustee, and a Note Majority may, in certain cases,
waive any default with respect thereto, except a default in the payment of
principal or interest or a default
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in respect of a covenant or provision of the Indenture that cannot be modified
without the waiver or consent of all of the holders of such outstanding Notes.
No holder of a Note of any series will have the right to institute any
proceeding with respect to the related Indenture, unless (i) such holder
previously has given to the Indenture Trustee written notice of a continuing
Event of Default, (ii) the holders of not less than 25% in principal amount of
the outstanding Notes of such series have made written request of the Indenture
Trustee to institute such proceeding in its own name as Indenture Trustee, (iii)
such holder or holders have offered and, if requested, provided to the Indenture
Trustee reasonable indemnity, (iv) the Indenture Trustee has for 60 days failed
to institute such proceeding, (v) no direction inconsistent with such written
request has been given to the Indenture Trustee during such 60-day period by the
holders of a majority in principal amount of such outstanding Notes, and (vi) in
the case of a series of Securities with respect to which a Policy is issued, an
Insurer Default shall have occurred and be continuing.
If an Event of Default occurs and is continuing and if it is actually known
to a responsible officer of the Indenture Trustee, the Indenture Trustee will
mail to each Noteholder notice of the Event of Default within 90 days after it
occurs. Except in the case of a failure to pay principal of or interest on any
Note, the Indenture Trustee may withhold the notice if and so long as it
determines in good faith that withholding the notice is in the interests of the
Noteholders.
In addition, each Indenture Trustee and the related Noteholders, by
accepting the related Notes, will covenant that they will not at any time
institute against the Seller or the related Trust any bankruptcy, reorganization
or other proceeding under any federal or state bankruptcy or similar law.
Neither the Indenture Trustee nor the Owner Trustee in its individual
capacity, nor any holder of a Certificate including, without limitation, the
Seller, nor any of their respective owners, beneficiaries, agents, officers,
directors, employees, affiliates, successors or assigns will, in the absence of
an express agreement to the contrary, be personally liable for the payment of
the related Notes or for any agreement or covenant of the related Trust
contained in the Indenture.
CERTAIN COVENANTS. Each Indenture will provide that the related Trust may
not consolidate with or merge into any other entity, unless (i) the entity
formed by or surviving such consolidation or merger is organized under the laws
of the United States or any state, (ii) such entity expressly assumes the
Trust's obligation to make due and punctual payments upon the Notes and the
performance or observance of every agreement and covenant of the Trust under the
Indenture, (iii) no Event of Default shall have occurred and be continuing
immediately after such merger or consolidation, (iv) the Owner Trustee has been
advised that the then current rating of the related Notes or Certificates then
in effect would not be reduced or withdrawn by the Rating Agencies as a result
of such merger or consolidation, (v) the Security Insurer, if any (prior to an
Insurer Default), has consented to such merger or consolidation, and (vi) the
Owner Trustee has received an opinion of counsel to the effect that such
consolidation or merger would have no material adverse tax consequence to the
Trust or to any related Noteholder or Certificateholder.
Each Trust will not, among other things, (i) except as expressly permitted
by the Indenture, the Purchase Agreement, the Trust Documents or certain related
documents for such Trust (collectively, the "Related Documents"), sell,
transfer, exchange or otherwise dispose of any of the assets of the Trust, (ii)
claim any credit on or make any deduction from the principal and interest
payable in respect of the related Notes (other than amounts withheld under the
Code or applicable state law) or assert any claim against any present or former
holder of such Notes because of the payment of taxes levied or assessed upon the
Trust, (iii) dissolve or liquidate in whole or in part, (iv) permit the validity
or effectiveness of the related Indenture to be impaired or permit any person to
be released from any covenants or obligations with respect to the related Notes
under such Indenture except as may be expressly permitted thereby, or (v) except
as expressly permitted by the Related Documents, permit any lien, charge,
excise, claim, security interest, mortgage or other encumbrance to be created on
or extend to or otherwise arise upon or burden the assets of the Trust or any
part thereof, or any interest therein or proceeds thereof.
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No Trust may engage in any activity other than as specified under the
section of the related Prospectus Supplement entitled "The Trust." No Trust will
incur, assume or guarantee any indebtedness other than indebtedness incurred
pursuant to the related Notes and the related Indenture or otherwise in
accordance with the Related Documents.
ANNUAL COMPLIANCE STATEMENT. Each Trust will be required to file annually
with the related Indenture Trustee a written statement as to the fulfillment of
its obligations under the Indenture.
INDENTURE TRUSTEE'S ANNUAL REPORT. The Indenture Trustee will be required
to mail each year to all related Noteholders a brief report relating to its
eligibility and qualification to continue as Indenture Trustee under the related
Indenture, any amounts advanced by it under the Indenture, the amount, interest
rate and maturity date of certain indebtedness owing by the Trust to the
Indenture Trustee in its individual capacity, the property and funds physically
held by the Indenture Trustee as such and any action taken by it that materially
affects the Notes and that has not been previously reported.
SATISFACTION AND DISCHARGE OF INDENTURE. The Indenture will be discharged
with respect to the collateral securing the related Notes upon the delivery to
the related Indenture Trustee for cancellation of all such Notes or, with
certain limitations, upon deposit with the Indenture Trustee of funds sufficient
for the payment in full of all of such Notes.
THE INDENTURE TRUSTEE
The Indenture Trustee for a series of Notes will be specified in the related
Prospectus Supplement. The Indenture Trustee may resign at any time, in which
event the Seller will be obligated to appoint a successor trustee acceptable to
the Security Insurer, if any (prior to an Insurer Default). The Seller may also
remove the Indenture Trustee, with the consent of the Security Insurer, if any
(prior to an Insurer Default), if the Indenture Trustee ceases to be eligible to
continue as such under the Indenture or if the Indenture Trustee becomes
insolvent. In such circumstances, the Seller will be obligated to appoint a
successor trustee acceptable to the Security Insurer, if any (prior to an
Insurer Default). Any resignation or removal of the Indenture Trustee and
appointment of a successor trustee will be subject to any conditions or
approvals, if any, specified in the related Prospectus Supplement and will not
become effective until acceptance of the appointment by a successor trustee.
CERTAIN INFORMATION REGARDING THE SECURITIES
BOOK-ENTRY REGISTRATION
Unless otherwise provided in the related Prospectus Supplement, the
Securities of each series will be registered in the name of Cede & Co., the
nominee of DTC. Beneficial interests in the Securities will be represented by
book entries on the records of the participating members of DTC. Definitive
Securities will be available only under the limited circumstances described
herein. Holders of the Securities may hold through DTC (in the United States) or
Cedel or Euroclear (as defined herein) (in Europe) if they are participants of
such systems, or indirectly through organizations that are participants in such
systems.
Cedel and Euroclear will hold omnibus positions in the Securities on behalf
of the Cedel Participants (as defined below) and the Euroclear Participants (as
defined below), respectively, through customers' securities accounts in Cedel's
and Euroclear's names on the books of their respective depositaries
(collectively, the "Depositaries"), which in turn will hold such positions in
customers' securities accounts in the Depositaries' names on the books of DTC.
DTC is a limited-purpose trust company organized under the laws of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A
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of the Exchange Act. DTC accepts securities for deposit from its participating
organizations ("Participants") and facilitates the clearance and settlement of
securities transactions between Participants in such securities through
electronic book-entry changes in accounts of Participants, thereby eliminating
the need for physical movement of certificates. Participants include securities
brokers and dealers, banks and trust companies and clearing corporations and may
include certain other organizations. Indirect access to the DTC system is also
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly ("indirect participants").
Certificate Owners and Note Owners who are not Participants but desire to
purchase, sell or otherwise transfer ownership of Securities may do so only
through Participants (unless and until Definitive Certificates or Definitive
Notes, each as defined below, are issued). In addition, Certificate Owners and
Note Owners will receive all distributions of principal of, and interest on, the
Securities from the Owner Trustee or the Indenture Trustee, as applicable,
through DTC and Participants. Certificate Owners and Note Owners will not
receive or be entitled to receive certificates representing their respective
interests in the Securities, except under the limited circumstances described
below and such other circumstances, if any, as may be specified in the related
Prospectus Supplement.
Unless and until Definitive Securities are issued, it is anticipated that
the only Certificateholder of the Certificates and the only Noteholder of the
Notes, if any, will be Cede & Co., as nominee of DTC. Certificate Owners and
Note Owners will not be recognized by the Owner Trustee as Certificateholders or
by the Indenture Trustee as Noteholders as those terms are used in the related
Trust Documents or Indenture. Certificate Owners and Note Owners will be
permitted to exercise the rights of Certificateholders or Noteholders, as the
case may be, only indirectly through Participants and DTC.
With respect to any series of Securities, while the Securities are
outstanding (except under the circumstances described below), under the rules,
regulations and procedures creating and affecting DTC and its operations (the
"Rules"), DTC is required to make book-entry transfers among Participants on
whose behalf it acts with respect to the Securities and is required to receive
and transmit distributions of principal of, and interest on, the Securities.
Participants with whom Certificate Owners or Note Owners have accounts with
respect to Securities are similarly required to make book-entry transfers and
receive and transmit such distributions on behalf of their respective
Certificate Owners and Note Owners. Accordingly, although Certificate Owners and
Note Owners will not possess Securities, the Rules provide a mechanism by which
Certificate Owners and Note Owners will receive distributions and will be able
to transfer their interests.
With respect to any series of Securities, unless otherwise specified in the
related Prospectus Supplement, Certificates (if any) and Notes (if any) will be
issued in registered form to Certificate Owners and Note Owners, or their
nominees, rather than to DTC (such Certificates and Notes being referred to
herein as "Definitive Certificates" and "Definitive Notes," respectively), only
if (i) DTC, the Seller or the Servicer advises the Owner Trustee or the
Indenture Trustee, as the case may be, in writing that DTC is no longer willing
or able to discharge properly its responsibilities as nominee and depository
with respect to the Certificates or the Notes, and the Seller, the Servicer, the
Owner Trustee or the Indenture Trustee, as the case may be, is unable to locate
a qualified successor, (ii) the Seller or the Administrator (if any) at its sole
option has advised the Owner Trustee or the Indenture Trustee, as the case may
be, in writing that it elects to terminate the book-entry system through DTC and
(iii) after the occurrence of a Servicer Termination Event, the holders
representing a majority of the Certificate Balance (a "Certificate Majority") or
a Note Majority advises the Owner Trustee or the Indenture Trustee, as the case
may be, through DTC, that continuation of a book-entry system is no longer in
their best interests. Upon issuance of Definitive Certificates or Definitive
Notes to Certificate Owners or Note Owners, such Certificates or Notes will be
transferable directly (and not exclusively on a book-entry basis) and registered
holders will deal directly with the Owner Trustee or the Indenture Trustee, as
the case may be, with respect to transfers, notices and distributions.
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DTC has advised the Seller that, unless and until Definitive Certificates or
Definitive Notes are issued, DTC will take any action permitted to be taken by a
Certificateholder or a Noteholder under the related Trust Documents or Indenture
only at the direction of one or more Participants to whose DTC accounts the
Certificates or Notes are credited. DTC has advised the Seller that DTC will
take such action with respect to any fractional interest of the Certificates or
the Notes only at the direction of and on behalf of such Participants
beneficially owning a corresponding fractional interest of the Certificates or
the Notes. DTC may take actions, at the direction of the related Participants,
with respect to some Certificates or Notes which conflict with actions taken
with respect to other Certificates or Notes.
Issuance of Certificates and Notes in book-entry form rather than as
physical certificates or notes may adversely affect the liquidity of
Certificates or Notes in the secondary market and the ability of the Certificate
Owners or Note Owners to pledge them. In addition, since distributions on the
Certificates and the Notes will be made by the Owner Trustee or the Indenture
Trustee to DTC and DTC will credit such distributions to the accounts of its
Participants, with the Participants further crediting such distributions to the
accounts of indirect participants or Certificate Owners or Note Owners,
Certificate Owners and Note Owners may experience delays in the receipt of such
distributions.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
Participants (as defined below) or Euroclear Participants (as defined below), on
the other, will be effected in DTC in accordance with DTC rules on behalf of the
relevant European international clearing systems by its Depositary; however,
such cross-market transactions will require delivery of instructions to the
relevant European international clearing system by the counterparty in such
system in accordance with its rules and procedures and within its established
deadlines (European time). The relevant European international clearing system
will, if the transaction meets its settlement requirements, deliver instructions
to its Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same-day funds settlement applicable to
DTC. Cedel Participants and Euroclear Participants may not deliver instructions
directly to the Depositaries.
Because of time-zone differences, credits of securities in Cedel or
Euroclear as a result of a transaction with a Participant will be made during
the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant Cedel
Participant or Euroclear Participant on such business day. Cash received in
Cedel or Euroclear as a result of sales of securities by or through a Cedel
Participant or a Euroclear Participant to a Participant will be received with
value on the DTC settlement date but will be available in the relevant Cedel or
Euroclear cash account only as of the business day following settlement in DTC.
Cedel is incorporated under the laws of Luxembourg as a professional
depository ("Cedel"). Cedel holds securities for its participating organizations
("Cedel Participants") and facilitates the clearance and settlement of
securities transactions between Cedel Participants through electronic book-entry
changes in accounts of Cedel Participants, thereby eliminating the need for
physical movement of certificates. Transactions may be settled in Cedel in any
of 28 currencies, including United States dollars. Cedel provides to its Cedel
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Cedel interfaces with domestic markets in several
countries. As a professional depository, Cedel is subject to regulation by the
Luxembourg Monetary Institute. Cedel Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations and may include the Underwriters. Indirect access to Cedel is also
available to others, such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Cedel Participant,
either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for participants
of the Euroclear System ("Euroclear Participants") and to clear and settle
transactions between Euroclear Participants through
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simultaneous electronic book-entry delivery against payment, thereby eliminating
the need for physical movement of certificates and any risk from lack of
simultaneous transfers of securities and cash. Transactions may now be settled
in Euroclear in any of 32 currencies, including United States dollars. The
Euroclear System includes various other services, including securities lending
and borrowing, and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described in Annex I hereto. The Euroclear System is operated by Morgan Guaranty
Trust Company of New York, Brussels, Belgium office (the "Euroclear Operator" or
"Euroclear"), under contract with Euroclear Clearance System, S.C., a Belgian
cooperative corporation (the "Cooperative"). All operations are conducted by the
Euroclear Operator, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear Operator, not the
Cooperative. The Cooperative establishes policy for the Euroclear System on
behalf of Euroclear Participants. Euroclear Participants include banks
(including central banks), securities brokers and dealers and other professional
financial intermediaries and may include the Underwriters. Indirect access to
the Euroclear System is also available to other firms that clear through or
maintain a custodial relationship with a Euroclear Participant, either directly
or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash with the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific certificates
to specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants and has no record
of or relationship with persons holding through Euroclear Participants.
STATEMENTS TO SECURITYHOLDERS
On or prior to each Distribution Date, the Servicer will prepare and provide
to the Owner Trustee a statement to be delivered to the related
Certificateholders on such Distribution Date. On or prior to each Payment Date,
the Servicer will prepare and provide to the Indenture Trustee a statement to be
delivered to the related Noteholders on such Payment Date. Such statements will
be based on the information in the related Servicer's Certificate setting forth
certain information required under the Trust Documents (the "Servicer's
Certificate"). Unless otherwise specified in the related Prospectus Supplement,
each such statement to be delivered to Certificateholders will include the
following information as to the Certificates with respect to such Distribution
Date or the period since the previous Distribution Date, as applicable, and each
such statement to be delivered to Noteholders will include the following
information as to the Notes with respect to such Payment Date or the period
since the previous Payment Date, as applicable:
(i) the amount of the distribution allocable to interest on or with
respect to each class of Securities;
(ii) the amount of the distribution allocable to principal on or with
respect to each class of Securities;
(iii) the Certificate Balance and the Certificate Pool Factor for each
class of Certificates and the aggregate outstanding principal balance and
the Note Pool Factor for each class of Notes, after giving effect to all
payments reported under (ii) above on such date;
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(iv) the amount of the Servicing Fee paid to the Servicer with respect
to the related Monthly Period or Periods, as the case may be;
(v) the Pass-Through Rate or Interest Rate for the next period for any
class of Certificates or Notes with variable or adjustable rates;
(vi) the amount, if any, distributed to Certificateholders and
Noteholders applicable to payments under the related Policy or other form of
credit enhancement, if any; and
(vii) such other information as may be specified in the related
Prospectus Supplement.
Each amount set forth pursuant to subclauses (i), (ii), (iv), (vi) and (vii)
with respect to Certificates or Notes will be expressed as a dollar amount per
$1,000 of the initial Certificate Balance or the initial principal balance of
the Notes, as applicable.
Unless and until Definitive Certificates or Definitive Notes are issued,
such reports with respect to a series of Securities will be sent on behalf of
the related Trust to the Owner Trustee, the Indenture Trustee and Cede & Co., as
registered holder of the Certificates and the Notes and the nominee of DTC.
Certificate Owners and Note Owners may receive copies of such reports upon
written request, together with a certification that they are Certificate Owners
or Note Owners, as the case may be, and payment of any expenses associated with
the distribution of such reports, from the Owner Trustee or the Indenture
Trustee, as applicable. See "Reports to Securityholders" and "-Book-Entry
Registration" above.
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year during the term of a Trust, the Owner Trustee and the
Indenture Trustee, as applicable, will mail to each holder of a class of
Securities who at any time during such calendar year has been a Securityholder,
and received any payment thereon, a statement containing certain information for
the purposes of such Securityholder's preparation of federal income tax returns.
See "Certain Federal Income Tax Consequences."
LISTS OF SECURITYHOLDERS
Unless otherwise provided in the related Prospectus Supplement, with respect
to each series of Certificates, at such time, if any, as Definitive Certificates
have been issued, the Owner Trustee will, upon written request by three or more
Certificateholders or one or more holders of Certificates evidencing not less
than 25% of the Certificate Balance, within five Business Days after provision
to the Owner Trustee of a statement of the applicants' desire to communicate
with other Certificateholders about their rights under the related Trust
Documents or the Certificates and a copy of the communication that the
applicants propose to transmit, afford such Certificateholders access during
business hours to the current list of Certificateholders for purposes of
communicating with other Certificateholders with respect to their rights under
the Trust Documents. Unless otherwise specified in the related Prospectus
Supplement, the Trust Documents will not provide for holding any annual or other
meetings of Certificateholders.
Unless otherwise provided in the related Prospectus Supplement, with respect
to each series of Notes, if any, at such time, if any, as Definitive Notes have
been issued, the Indenture Trustee will, upon written request by three or more
Noteholders or one or more holders of Notes evidencing not less than 25% of the
aggregate principal balance of the related Notes, within five Business Days
after provision to the Indenture Trustee of a statement of the applicants'
desire to communicate with other Noteholders about their rights under the
related Indenture or the Notes and a copy of the communication that the
applicants propose to transmit, afford such Noteholders access during business
hours to the current list of Noteholders for purposes of communicating with
other Noteholders with respect to their rights under the Indenture. Unless
otherwise specified in the related Prospectus Supplement, the Indenture will not
provide for holding any annual or other meetings of Noteholders.
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DESCRIPTION OF THE PURCHASE AGREEMENTS AND THE
TRUST DOCUMENTS
Except as otherwise specified in the related Prospectus Supplement, the
following summary describes certain terms of the Purchase Agreements (each a
"Purchase Agreement") pursuant to which the Seller will purchase Receivables
from Arcadia Financial, and certain terms of either (i) the Pooling and
Servicing Agreements or (ii) the Sale and Servicing Agreements and the Trust
Agreements (in either case collectively referred to as the "Trust Documents")
pursuant to which the Seller will sell and assign such Receivables to a Trust
and the Servicer will agree to service such Receivables on behalf of the Trust,
and pursuant to which such Trust will be created and Certificates, if any, will
be issued. Forms of the Purchase Agreement and the Trust Documents have been
filed as exhibits to the Registration Statement of which this Prospectus forms a
part. The Seller will provide a copy of such agreements (without exhibits) upon
request to a holder of Securities described therein. This summary does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, all of the provisions of the Purchase Agreement and the Trust
Documents. Where particular provisions or terms used in the Purchase Agreement
and the Trust Documents are referred to, the actual provisions (including
definitions of terms) are incorporated by reference as part of such summary.
SALE AND ASSIGNMENT OF THE RECEIVABLES
On or prior to the Closing Date with respect to a series of Securities
specified in the related Prospectus Supplement, Arcadia Financial will enter
into one or more Purchase Agreements with the Seller pursuant to which Arcadia
Financial will, on or prior to such Closing Date, sell and assign to the Seller,
without recourse, its entire interest in and to the related Receivables,
including its security interest in the Financed Vehicles securing such
Receivables and its rights to receive all payments on, or proceeds with respect
to, such Receivables to the extent paid or payable after the applicable Cutoff
Date. In connection with its warehouse financing arrangements, Arcadia Financial
may also enter into Purchase Agreements with other special-purpose subsidiaries
of Arcadia Financial ("Warehousing Subsidiaries"). These Warehousing
Subsidiaries would obtain warehouse financing for some or all of the Receivables
prior to the Closing Date for a series of Securities; on the Closing Date for
the related series of Securities, the Warehousing Subsidiary would assign to the
Seller its entire interest in the related Receivables, together with its rights
against Arcadia Financial under the related Purchase Agreement with respect to
those Receivables. Pursuant to each Purchase Agreement, Arcadia Financial will
agree that, upon the occurrence of a Repurchase Event under the related Trust
Documents with respect to any of the Receivables of a Trust, the Owner Trustee
on behalf of the Security Insurer (if any) and the Certificateholders (if any)
will be entitled to require Arcadia Financial to repurchase such Receivables
from the Trust. Such rights of the Trust under each Purchase Agreement will
constitute part of the property of the Trust and may be enforced directly by the
Owner Trustee on behalf of the Security Insurer (if any) and the
Certificateholders (if any). In addition, the Owner Trustee will pledge such
rights to the Indenture Trustee as collateral for the Notes, if any.
On the Closing Date, the Seller will sell and assign to the Owner Trustee,
without recourse, the Seller's entire interest in the related Receivables and
the proceeds thereof, including its security interests in the Financed Vehicles.
Each Receivable transferred by the Seller to the Trust will be identified in a
schedule appearing as an exhibit to the related Trust Documents (the "Schedule
of Receivables"). Concurrently with such sale and assignment, the Owner Trustee
will execute and deliver the related certificates representing the Certificates
to or upon the order of the Seller, and the Owner Trustee will execute and the
Indenture Trustee will authenticate and deliver the Notes, if any, to or upon
the order of the Seller.
Unless otherwise specified in the related Prospectus Supplement, in each
Purchase Agreement, Arcadia Financial will warrant to the Seller and the Owner
Trustee, and in the Trust Documents, the Seller will warrant to the Owner
Trustee, among other things, that (except as otherwise specified in the related
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Prospectus Supplement): (i) each Receivable (A) has created or will create a
valid, binding and enforceable first priority security interest in favor of
Arcadia Financial in the Financed Vehicle (and, within 180 days after the
Closing Date, all title documents to the Financed Vehicles will show Arcadia
Financial as first lienholder), which security interest has been validly
assigned by Arcadia Financial to the Seller and by the Seller to the Owner
Trustee, (B) was originated by a Dealer for the retail sale of a Financed
Vehicle in the ordinary course of such Dealer's business, was fully and properly
executed by the parties thereto, was purchased by Arcadia Financial from such
Dealer under an existing Dealer Agreement with Arcadia Financial and was validly
assigned by such Dealer to Arcadia Financial, (C) contains customary and
enforceable provisions adequate to enable realization against the collateral
security and (D) except for any Balloon Payment Receivables, is a fully
amortizing simple interest receivable which provides for level monthly payments
(other than with respect to the first and the final payments) which, if made
when due, will fully amortize the amount financed over the original term; (ii)
no selection procedures adverse to the Securityholders were utilized in
selecting the Receivables from those receivables owned by Arcadia Financial
which meet the selection criteria contained in the Trust Documents; (iii) all
requirements of applicable Federal, state and local laws, and regulations
thereunder, in respect of all of the Receivables and each and every sale of the
Financed Vehicles have been complied with in all material respects; (iv) each
Receivable represents the genuine, legal, valid and binding payment obligation
of the Obligor thereon, enforceable in accordance with its terms, except as may
be limited by laws affecting creditors' rights generally or as may be modified
by the application of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"); (v) (A) immediately before the conveyance of each
Receivable to the Trust, such Receivable will be secured by an enforceable and
validly perfected first priority security interest in the Financed Vehicle in
favor of the Seller as secured party, (B) immediately after the conveyance of
each Receivable to the Trust, such Receivable will be secured by an enforceable
and validly perfected first priority security interest in the Financed Vehicle
in favor of the Trust as secured party or, in each case, all necessary and
appropriate action has been commenced and will be completed within 180 days that
would result in such a security interest and (C) as of the Cutoff Date there
were no security interests, liens, charges, pledges, preferences, equities or
encumbrances of any kind, claims or rights of others or claims for taxes, work,
labor or materials affecting a Financed Vehicle (each, a "Lien") which are or
may be Liens prior or equal to the Lien of the related Receivable; (vi) there
has been no default, breach, violation or event permitting acceleration under
the terms of any Receivable (other than payment delinquencies of not more than
30 days), and there has been no waiver of any of the foregoing; and as of the
Cutoff Date, no Financed Vehicle had been repossessed; (vii) immediately prior
to the conveyance of the Receivables to the Seller, Arcadia Financial had good
and indefeasible title thereto and was the sole owner thereof, free of any Lien;
immediately prior to the conveyance of the Receivables to the Trust, the Seller
had good and indefeasible title thereto and was the sole owner thereof, free of
any Lien; and upon conveyance of the Receivables by the Seller to the Trust
pursuant to the Trust Documents, the Trust will have good and indefeasible title
to and will be the sole owner of the Receivables, free of any Lien; (viii) no
Dealer has a participation in or other right to receive proceeds of any
Receivable, and neither Arcadia Financial nor the Seller has taken any action to
convey any right to any person that would result in such person having a right
to payments received with respect to any Receivable; (ix) neither Arcadia
Financial nor the Seller has done anything to convey any right to any person
that would impair the rights of the Trust, the Certificateholders or the
Noteholders in any Receivable or the proceeds thereof; (x) each Receivable was
originated by a Dealer and was sold by the Dealer to Arcadia Financial without
any fraud or misrepresentation on the part of such Dealer; (xi) no Obligor is
the United States of America or any State or any agency, department, subdivision
or instrumentality thereof; (xii) no Receivable is assumable by another person
in a manner that would release the Obligor thereof from such Obligor's
obligations to Arcadia Financial with respect to such Receivable; (xiii) no
Receivable was originated in, or is subject to the laws of, any jurisdiction the
laws of which would make unlawful, void or voidable the sale, transfer and
assignment of such Receivable under the Purchase Agreement or the Trust
Documents or pursuant to transfers of the Securities; (xiv) all filings and
other actions required to be made, taken or performed by any person in any
jurisdiction to give the Trust a first priority perfected lien or ownership
interest in the Receivables will have been made, taken or
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performed; (xv) there exists a Receivable File pertaining to each Receivable,
and such Receivable File contains (A) the fully executed original of the
Receivable, (B) a certificate of insurance or application form for insurance
signed by the Obligor, or copies thereof, (C) the original lien certificate or
application therefor and (D) a credit application signed by the Obligor, or a
copy thereof; each of such documents required to be signed by the Obligor has
been signed by the Obligor in the appropriate spaces, all blanks have been
properly filled in and each form has otherwise been correctly prepared; and the
complete Receivable File for each Receivable is in the possession of a
custodian; (xvi) there is only one original executed copy of each Receivable;
(xvii) the Receivables constitute chattel paper within the meaning of the UCC as
in effect in the States of New York and Minnesota; (xviii) each Receivable was
entered into by an Obligor who at the Cutoff Date had not been identified on the
records of Arcadia Financial as being the subject of a current bankruptcy
proceeding; (xix) the computer tape containing information with respect to the
Receivables that was made available by the Seller to the Owner Trustee on the
Closing Date and was used to select the Receivables (the "Computer Tape") was
complete and accurate as of the Cutoff Date and includes a description of the
same Receivables that are described in the Schedule of Receivables; (xx) by the
Closing Date, the portions of the electronic master record of retail installment
sale contracts and promissory notes of Arcadia Financial (the "Electronic
Ledger") relating to the Receivables will have been clearly and unambiguously
marked to show that the Receivables constitute part of the Trust Property and
are owned by the Trust in accordance with the terms of the Trust Documents;
(xxi) the information set forth in the Schedule of Receivables was produced from
the Electronic Ledger and was true and correct in all material respects as of
the close of business on the Cutoff Date; (xxii) as of the Closing Date, each
Financed Vehicle was covered by a comprehensive and collision insurance policy
(A) in an amount at least equal to the lesser of (1) its maximum insurable value
or (2) the principal amount due from the Obligor under the related Receivable,
(B) naming Arcadia Financial as loss payee and (C) insuring against loss and
damage due to fire, theft, transportation, collision and other risks generally
covered by comprehensive and collision insurance coverage; and no Financed
Vehicle was or had previously been insured under a policy of force-placed
insurance; (xxiii) no Receivable has been satisfied, subordinated or rescinded;
the Financed Vehicle securing each Receivable has not been released from the
lien of the related Receivable in whole or in part; and no provision of a
Receivable has been waived, altered or modified in any respect, except by
instruments or documents contained in the Receivable File; (xxiv) no Receivable
is subject to any right of rescission, set-off, counterclaim or defense; (xxv)
no Receivable was more than 30 days past due as of the Cutoff Date and (xxvi)
each Receivable had a remaining principal balance as of the Cutoff Date equal to
or greater than $500.00.
The warranties of Arcadia Financial and the Seller will be made as of the
execution and delivery of each Purchase Agreement and the related Trust
Documents and will survive the sale, transfer and assignment of the related
Receivables and other Trust Property to the Trust but will speak only as of the
date made.
In the event of a breach by Arcadia Financial of any representation or
warranty made by it in a Purchase Agreement with respect to a Receivable that
materially and adversely affects the interests of the Securityholders, the
Security Insurer (if any) or the Trust in that Receivable (any such breach by
Arcadia Financial being a "Repurchase Event"), Arcadia Financial, unless it
cures the breach by the second Accounting Date after the date on which Arcadia
Financial becomes aware of or receives written notice from the Owner Trustee,
the Indenture Trustee, the Security Insurer, if any, or the Servicer of such
breach, will be obligated to repurchase the Receivable from the Trust. Any such
repurchase shall be made on the Deposit Date immediately following such second
Accounting Date at a price equal to the Purchase Amount as of such second
Accounting Date. The "Purchase Amount" of any Receivable means, with respect to
any Accounting Date, the outstanding principal balance of such Receivable as of
such Accounting Date, plus accrued and unpaid interest thereon. The "Deposit
Date" with respect to any Distribution Date is the Business Day immediately
preceding the Determination Date for such Distribution Date. An "Accounting
Date" is the last day (whether or not a Business Day) of any calendar month.
This repurchase obligation may be enforced by the Security Insurer (if any), or
by the Owner Trustee or the
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Indenture Trustee on behalf of the Certificateholders and the Noteholders,
respectively, and will constitute the sole remedy available to the
Certificateholders, the Noteholders, the Security Insurer (if any), unless
otherwise specified in the related Prospectus Supplement, the Owner Trustee or
the Indenture Trustee against Arcadia Financial or the Seller for any such
uncured breach, except that pursuant to the Trust Documents, Arcadia Financial
will indemnify the Owner Trustee, the Indenture Trustee, the Trust, the Backup
Servicer, the Collateral Agent, the Security Insurer (if any), and the
Certificateholders and Noteholders against losses, damages, liabilities and
claims which may be asserted against any of them as a result of third-party
claims arising out of the facts giving rise to such breach.
Upon the purchase by Arcadia Financial of a Warranty Receivable, the Owner
Trustee will convey such Receivable and the related Trust Property to Arcadia
Financial.
CUSTODY OF RECEIVABLE FILES
Unless otherwise specified in the related Prospectus Supplement, Arcadia
Financial initially will be appointed to act as custodian for the Receivable
Files of each Trust. Prior to any such appointment, the Trust and Arcadia
Financial or such other institution specified in the related Prospectus
Supplement, as the case may be, shall enter into a custodian agreement pursuant
to which Arcadia Financial or such other institution will agree to hold the
Receivable Files on behalf of the related Trust. Any such custodian agreement
may be terminated by the Trust and, if Arcadia Financial is custodian, by the
Security Insurer, on 30 days' notice to Arcadia Financial or such other
institution or, in the case of termination by the Security Insurer of Arcadia
Financial as custodian, immediately. If Arcadia Financial resigns or is
terminated as the Servicer, any custodian agreement with Arcadia Financial shall
terminate at the same time.
The Receivable Files, if held by Arcadia Financial as custodian, will be
stamped or otherwise marked to indicate that such Receivables have been sold to
the related Trust. The Receivable Files will also be physically segregated.
Despite these precautions, if, through inadvertence or otherwise, any of the
Receivables were sold to another party (or a security interest therein were
granted to another party) that purchased (or took such security interest in) any
of such Receivables in the ordinary course of its business and took possession
of such Receivables, the purchaser (or secured party) would acquire an interest
in the Receivables superior to the interest of the related Trust if the
purchaser (or secured party) acquired (or took a security interest in) the
Receivables for new value and without actual knowledge of such Trust's interest.
See "Certain Legal Aspects of the Receivables-Rights in the Receivables."
COLLECTIONS
With respect to each Trust, the Servicer will establish one or more
Collection Accounts in the name of the Owner Trustee or, in the case of any
series including one or more classes of Notes, in the name of the Indenture
Trustee for the benefit of the related Securityholders. If so specified in the
related Prospectus Supplement, the Owner Trustee will establish and maintain for
each series an account, in the name of the Owner Trustee on behalf of the
related Certificateholders, in which amounts released from the Collection
Account and any Pre-Funding Account and any amounts received from any source of
credit enhancement for distribution to such Certificateholders will be deposited
and from which all distributions to such Certificateholders will be made (the
"Certificate Distribution Account"). With respect to any series including one or
more classes of Notes, the Indenture Trustee will establish and maintain for
each series an account, in the name of the Indenture Trustee on behalf of the
related Noteholders, in which amounts released from the Collection Account and
any Pre-Funding Account and any amounts received from any source of credit
enhancement for payment to such Noteholders will be deposited and from which all
distributions to such Noteholders will be made (the "Note Distribution
Account"). The Collection Account, the Certificate Distribution Account (if
any), and the Note Distribution Account (if any), are referred to herein
collectively as the "Designated Accounts." Any other accounts to be established
with respect to a Trust will be described in the related Prospectus Supplement.
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Each Designated Account will be an Eligible Account maintained with the
Owner Trustee, the Indenture Trustee and/or other depository institutions. An
"Eligible Account" is (i) a segregated trust account that is maintained with the
corporate trust department of a depository institution (acceptable to the
Security Insurer, if any, unless otherwise specified in the related Prospectus
Supplement) or (ii) a segregated demand deposit account maintained with a
depository institution or trust company organized under the laws of the United
States of America, or any of the states thereof, or the District of Columbia,
that has a certificate of deposit, short-term deposit or commercial paper rating
of at least A-1+ by S&P and P-1 by Moody's (the "Required Deposit Rating"), and
that is acceptable to the Security Insurer, if any (prior to an Insurer Default,
unless otherwise specified in the related Prospectus Supplement). On the Closing
Date specified in the related Prospectus Supplement, the Servicer will cause to
be deposited in the Collection Account all payments on the Receivables received
by the Servicer after the Cutoff Date and on or prior to the second Business Day
preceding the Closing Date (plus amounts on deposit in the Lockbox Account (as
defined below) on such second Business Day).
Unless otherwise specified in the related Prospectus Supplement, Arcadia
Financial will take (or will have taken) steps to cause all payments by Obligors
on the Receivables held by any Trust to be made by check mailed to a bank
(initially Harris Trust and Savings Bank, unless otherwise provided in the
related Prospectus Supplement) acting as agent for the Owner Trustee and for
other owners of automobile receivables serviced by Arcadia Financial (the
"Lockbox Bank"). Unless otherwise specified in the related Prospectus
Supplement, the identity of the Lockbox Bank may be changed at any time by the
Security Insurer, if any (prior to an Insurer Default). Unless otherwise
specified in the related Prospectus Supplement, all payments by check on the
Receivables and all payments made by automatic deduction from Obligors' checking
accounts will be deposited in a segregated account maintained by the Lockbox
Bank (the "Lockbox Account") and will be transferred by the Lockbox Bank into
the Collection Account within two Business Days of receipt. If the Servicer
continues to receive payments from any Obligor other than to the Lockbox
Account, the Servicer will take reasonable action to cause the Obligor to make
such payments to the Lockbox Account, including sending additional instruction
letters to such Obligor.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer will deposit all payments on the Receivables held by any Trust received
directly by the Servicer from Obligors and all proceeds of Receivables collected
directly by the Servicer during each Monthly Period into the Collection Account
not later than the Business Day after receipt. Notwithstanding the foregoing and
unless otherwise provided in the related Prospectus Supplement, the Servicer may
utilize an alternative remittance schedule acceptable to the Servicer and the
Security Insurer, if any (prior to an Insurer Default), if the Servicer provides
to the Owner Trustee and the Indenture Trustee written confirmation from each
Rating Agency that such alternative remittance schedule will not result in the
downgrading or withdrawal by such Rating Agency of the rating(s) then assigned
to the Securities. Arcadia Financial and the Servicer will also deposit into the
Collection Account on or before the Deposit Date the Purchase Amount of each
Warranty Receivable or Administrative Receivable to be purchased by it as of the
related Accounting Date.
For any series of Securities, funds in the Designated Accounts and any other
accounts identified in the related Prospectus Supplement will be invested, as
provided in the related Trust Documents, at the direction of the Servicer in
"Eligible Investments," consisting (unless otherwise specified in the related
Prospectus Supplement) of: interest-bearing obligations issued or guaranteed as
to principal and interest by the United States or any agency or instrumentality
of the United States, the obligations of which are backed by the full faith and
credit of the United States; interest-bearing obligations issued or guaranteed
by the Federal National Mortgage Association or the Federal Home Loan Mortgage
Corporation as long as such obligations are assigned the highest credit rating
by S&P and Moody's; demand or time deposits, certificates of deposit of and
certain other obligations of domestic depositary institutions with short-term
unsecured debt obligations assigned the highest credit rating by S&P and
Moody's; certain repurchase obligations with respect to the government
securities described above and entered into with a domestic depository
institution or trust company, the deposits of which are rated at least A-1+ by
S&P and P-1 by Moody's; certain corporate debt securities assigned the highest
credit rating by S&P and Moody's; certain
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commercial paper rated in the highest credit rating category by S&P and Moody's;
and certain other securities meeting the criteria specified in the related Trust
Documents. Eligible Investments shall mature no later than the Business Day
preceding the applicable Distribution Date or Payment Date, as the case may be,
for the Monthly Period to which such amounts relate. Investments in Eligible
Investments will be made in the name of the Owner Trustee or the Indenture
Trustee, as the case may be, and such investments will not be sold or disposed
of prior to their maturity.
Unless otherwise specified in the related Prospectus Supplement, collections
or recoveries on a Receivable (other than late fees or certain other similar
fees or charges) received during a Monthly Period and Purchase Amounts deposited
with the Owner Trustee prior to a Distribution Date will be applied first to any
outstanding Monthly Advances made by the Servicer with respect to such
Receivable, and then to interest and principal on the Receivable in accordance
with the terms of the Receivable.
As an administrative convenience and subject to certain conditions specified
in the Trust Documents, the Servicer will be permitted to make deposits of
amounts actually collected by it in a Monthly Period net of distributions to be
made to it with respect to such Monthly Period, which amounts may be netted
prior to any such remittance for the Monthly Period. The Servicer will account,
however, to the Owner Trustee, the Indenture Trustee, the Security Insurer, if
any, the Certificateholders and the Noteholders as if all such deposits and
distributions were made individually. The Servicer will be entitled to withhold,
or to be reimbursed from amounts otherwise payable into, or on deposit in, the
Collection Account with respect to a Monthly Period, amounts previously
deposited in the Collection Account but later determined to have resulted from
mistaken deposits or postings or checks returned for insufficient funds.
SERVICING PROCEDURES
The Servicer will make reasonable efforts, consistent with the customary
servicing procedures employed by the Servicer with respect to Receivables owned
or serviced by it, to collect all payments due with respect to the Receivables
held by any Trust and, in a manner consistent with the Trust Documents, will
follow its customary collection procedures with respect to motor vehicle loans
that it services for itself and others.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer will covenant in the related Trust Documents that it will not extend
the monthly payments under a Receivable more than a maximum of two times in any
twelve-month period, six months in the aggregate, and that the cumulative
extensions with respect to any Receivable will not cause the term of such
Receivable to extend beyond the last day of the Monthly Period immediately
preceding the Final Scheduled Distribution Date specified in the related
Prospectus Supplement. Except for the extensions described above and except for
changes in the day of the month on which the due date of a Receivable occurs or
the reamortization of scheduled payments following a partial principal
prepayment, the Servicer cannot, without the consent of the Security Insurer, if
any (prior to an Insurer Default) and, subject to the exceptions, if any,
specified in the related Prospectus Supplement, otherwise agree to amend or
modify any Receivable. Unless otherwise specified in the related Prospectus
Supplement, the Servicer may, with the consent of the Security Insurer, if any
(prior to an Insurer Default) and subject to certain other conditions, agree to
modify a Receivable to avoid a prepayment by the Obligor, provided that such
modification may not cause the APR on such Receivable to be below a rate equal
to the highest Interest Rate or Pass-Through Rate on the related Securities plus
1.5%, nor may such modification cause the term of the modified Receivable to
extend beyond the last day of the Monthly Period immediately preceding the Final
Scheduled Distribution Date specified in the related Prospectus Supplement.
Under current Treasury Regulations, depending on the characterization of the
related Trust for federal income tax purposes, no such modification of a
Receivable may change the APR by more than .25% or, if greater, 5% of the
unmodified APR of such Receivable. The Servicer will also covenant that it will
not release a Financed Vehicle from the security interest granted by the
Receivable except when the Receivable has been paid in full or as otherwise
contemplated by the Trust Documents.
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Except as otherwise provided in the related Prospectus Supplement, upon the
discovery by any of the Servicer, the Security Insurer, if any, the Owner
Trustee or the Indenture Trustee, or receipt of written notice by the Servicer
of any breach by the Servicer of certain of its covenants that materially and
adversely affects the interests of a Trust, the Security Insurer (if any) or the
related Securityholders in a Receivable (an "Administrative Receivable"), unless
such breach shall have been cured by the second Accounting Date following the
Servicer's discovery or receipt of written notice of such breach, the Servicer
will be required to purchase the related Receivable for the Purchase Amount on
the related Deposit Date. The purchase obligation will constitute the sole
remedy available to the Security Insurer (if any), the Certificateholders, the
Owner Trustee on behalf of Certificateholders, the Noteholders or the Indenture
Trustee on behalf of Noteholders against the Servicer for any such uncured
breach, except with respect to certain indemnities of the Servicer under the
Trust Documents.
Under the Trust Documents, the Servicer will be required to use its best
efforts to repossess or otherwise comparably convert the ownership of any
Financed Vehicle securing a Receivable with respect to which the Servicer has
determined that payments thereunder are not likely to be resumed as soon as
practicable after default on such Receivable, but in no event later than the day
on which any portion of a Scheduled Payment has become 91 days delinquent. The
Servicer is authorized to follow such of its normal collection practices and
procedures as it deems necessary or advisable to realize upon any Receivable.
The Servicer may repossess and sell the Financed Vehicle securing such
Receivable at judicial sale, or take any other action permitted by applicable
law. See "Certain Legal Aspects of the Receivables." The Servicer will be
entitled to recover all reasonable expenses incurred by it in connection
therewith. The proceeds of such realization (net of such expenses) will be
deposited in the Collection Account at the time and in the manner described
above under "-Collections."
The Trust Documents will provide that the Servicer will indemnify and defend
the Owner Trustee, the Indenture Trustee, the Backup Servicer, the Trust, the
Security Insurer (if any) and the Securityholders against, among other things,
any and all costs, expenses, losses, damages, claims and liabilities, including
reasonable fees and expenses of counsel and expenses of litigation, arising out
of or resulting from the use, ownership or operation by the Servicer or any
affiliate thereof of any Financed Vehicle or in respect of any action taken or
failed to be taken by the Servicer with respect to any portion of the Trust
Property in violation of the provisions of the Trust Documents. The Servicer's
obligations to indemnify the Owner Trustee, the Indenture Trustee, the Backup
Servicer, the Trust, the Security Insurer (if any) and the Securityholders for
the Servicer's actions or omissions will survive the removal of the Servicer but
will not apply to any action or omission of a successor Servicer.
SERVICING COMPENSATION
Unless otherwise specified in the related Prospectus Supplement, with
respect to each series of Securities, the Servicer will be entitled to receive
the Servicing Fee for each Monthly Period in an amount equal to the product of
one-twelfth of the Servicing Rate and the Aggregate Principal Balance as of the
first day of such Monthly Period. The Servicer also will be entitled to collect
and retain any late fees or other administrative fees or similar charges allowed
by the terms of the Receivables or applicable law. Unless otherwise provided in
the related Prospectus Supplement, the "Servicing Rate" will equal 1.25% per
annum calculated on the basis of a 360-day year consisting of twelve 30-day
months. The Servicing Fee and any additional servicing compensation will be paid
out of collections on or with respect to the Receivables prior to distributions
to Certificateholders and Noteholders. Unless otherwise specified in the related
Prospectus Supplement, a "Monthly Period" with respect to any Distribution Date
is the calendar month immediately preceding the month in which the Distribution
Date occurs.
Arcadia Financial, as Servicer, will be required to pay all expenses
incurred by it in connection with its servicing activities (including fees,
expenses and disbursements of the Owner Trustee, the Indenture Trustee, the
Lockbox Bank, the Custodian and independent accountants, taxes imposed on the
Servicer and expenses incurred in connection with distributions and reports to
Certificateholders and Noteholders and the Security Insurer (if any)), except
certain expenses incurred in connection with realizing upon the Receivables.
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MONTHLY ADVANCES
Unless otherwise provided in the related Prospectus Supplement, if the
amount deposited in the related Collection Account allocable to interest with
respect to any Receivable in any Monthly Period is less than the full amount of
interest accrued on such Receivable for the number of calendar days in such
Monthly Period (calculated according to the method specified in the related
retail installment sale contract or promissory note at the APR on the Principal
Balance of such Receivable as of the Accounting Date preceding such Distribution
Date), the Servicer will make a Monthly Advance equal to the amount of such
shortfall; provided, however, that the Servicer shall not be required to make a
Monthly Advance with respect to a Receivable extended for any Monthly Period
during which no Scheduled Payment is due according to the terms of such
extension; and provided further, that the Servicer shall not be required to make
a Monthly Advance with respect to a Receivable that is less than 31 days
delinquent. The Servicer will be reimbursed for any Monthly Advances from
subsequent payments or collections relating to the Receivable or from the
Purchase Amount of such Receivable, or in the case of a Liquidated Receivable,
from Liquidation Proceeds of such Receivable. If such Receivable becomes a
Liquidated Receivable and such Liquidation Proceeds are insufficient fully to
reimburse the Servicer, the Servicer will be entitled to be reimbursed from
collections on other Receivables. If, by reason of reimbursement of the Servicer
for Monthly Advances, there is a deficiency in a Scheduled Payment, the Servicer
will be obligated to advance the deficiency, subject to the limitations
described above.
DISTRIBUTIONS
With respect to each Trust, beginning on the Distribution Date or Payment
Date, as applicable, specified in the related Prospectus Supplement,
distributions of principal and interest (or, where applicable, of principal or
interest only) on each class of Securities entitled thereto will be made by the
Owner Trustee or the Indenture Trustee, as applicable, to the Certificateholders
and the Noteholders. The timing, calculation, allocation, order, source,
priorities of and requirements for all distributions to each class of
Certificateholders and all payments to each class of Noteholders will be set
forth in the related Prospectus Supplement.
CREDIT ENHANCEMENT
The amounts and types of credit enhancement arrangements and the provider
thereof, if applicable, with respect to each class of Securities will be set
forth in the related Prospectus Supplement. If and to the extent provided in the
related Prospectus Supplement, credit enhancement may be in the form of a
financial guaranty insurance policy, subordination of one or more classes of
Securities, reserve accounts, overcollateralization, letters of credit, credit
or liquidity facilities, repurchase obligations, third party payments or other
support, cash deposits or such other arrangements as may be described in the
related Prospectus Supplement or any combination of two or more of the
foregoing. If specified in the applicable Prospectus Supplement, credit
enhancement for a series of Securities may cover one or more other series of
Securities.
The presence of credit enhancement is intended to enhance the likelihood of
receipt by the Certificateholders and the Noteholders of the full amount of
principal and interest due thereon and to decrease the likelihood that the
Certificateholders and the Noteholders will experience losses. Unless otherwise
specified in the related Prospectus Supplement, the credit enhancement for a
class of Securities will not provide protection against all risks of loss and
will not guarantee repayment of the entire principal and interest thereon. If
losses occur which exceed the amount covered by any credit enhancement or which
are not covered by any credit enhancement, Securityholders will bear their
allocable share of deficiencies. In addition, if a form of credit enhancement
covers more than one series of Securities, Securityholders of any such series
will be subject to the risk that such credit enhancement will be exhausted by
the claims of Securityholders of other series.
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EVIDENCE AS TO COMPLIANCE
The Trust Documents will require the Servicer to cause a firm of independent
certified public accountants to furnish to the Owner Trustee and the Indenture
Trustee, the Security Insurer, if any, and each Rating Agency, on or before
March 31 of each year (or, if the Servicer's fiscal year ends on a date other
than December 31, the date 90 days after the end of the Servicer's fiscal year),
beginning on the first March 31 after the Closing Date, with respect to the
twelve months ended the immediately preceding December 31 or other fiscal
year-end (or such other period as shall have elapsed from the Closing Date to
the date of such certificate), a statement addressed to the Board of Directors
of the Servicer, to the Owner Trustee, the Indenture Trustee, the Backup
Servicer and the Security Insurer, if any, as to compliance by the Servicer
during such period with certain standards relating to the servicing of the
Receivables set forth in the Trust Documents. A copy of such statement may be
obtained by any Certificate Owner or Note Owner upon compliance with the
requirements described above. See "Certain Information Regarding the
Securities-Statements to Securityholders" above.
The Trust Documents will also provide for delivery to the Owner Trustee, the
Indenture Trustee, the Security Insurer, if any, and each Rating Agency, if any,
and the Backup Servicer, on or before March 31 (or, if the Servicer's fiscal
year ends on a date other than December 31, the date 90 days after the end of
the Servicer's fiscal year) of each year, beginning on the first March 31
following the Closing Date, of an officers' certificate signed by any two of the
president, any vice-president or assistant vice president, or the controller of
the Servicer (each, a "Servicer Responsible Officer"), dated as of December 31
of such year (or such other date on which the Servicer's fiscal year ends),
stating that (i) a review of the activities of the Servicer during the preceding
12-month period (or such other period as shall have elapsed from the Closing
Date to the date of the first such certificate) and of its performance under the
Trust Documents has been made under such officer's supervision, and (ii) to such
officer's knowledge, based on such review, the Servicer has fulfilled all its
obligations under the Trust Documents throughout such period, or, if there has
been a default in the fulfillment of any such obligation, specifying each such
default known to such officer and the nature and status thereof. A copy of such
certificate may be obtained by any Certificate Owner or Note Owner upon
compliance with the requirements described above. See "Certain Information
Regarding the Securities-Statements to Securityholders" above.
CERTAIN MATTERS REGARDING THE SERVICER
Unless otherwise provided in the related Prospectus Supplement, if a Policy
has been issued with respect to a series of Securities, Arcadia Financial's
appointment as Servicer under the related Trust Documents will run for
successive 90-day periods, subject to renewal by the Security Insurer, if any
(prior to an Insurer Default). It is expected that the Security Insurer (if any)
will renew Arcadia Financial's appointment as Servicer until such time, if any,
as a Servicer Termination Event shall have occurred. Unless otherwise provided
in the related Prospectus Supplement, if an Insurer Default occurs or if no
Policy is issued with respect to a series, Arcadia Financial's appointment as
Servicer under the related Trust Documents will continue until such time as it
resigns, is terminated as Servicer, or until such time, if any, as a Servicer
Termination Event shall have occurred under the related Trust Documents. The
related Trust Documents will provide that the Servicer may not resign from its
obligations and duties as Servicer thereunder, except upon a determination (as
evidenced by an opinion of independent counsel, delivered and acceptable to the
Owner Trustee, the Indenture Trustee and the Security Insurer, if any (prior to
an Insurer Default)), that by reason of a change in legal requirements its
performance of such duties would cause it to be in violation of such legal
requirements in a manner which would result in a material adverse effect on the
Servicer. No such resignation will become effective until the Backup Servicer or
other successor Servicer has assumed the servicing obligations and duties under
the related Trust Documents.
Unless otherwise provided in the related Prospectus Supplement, any
corporation or other entity into which the Servicer may be merged or
consolidated, resulting from any merger or consolidation to which the Servicer
is a party, which acquires by conveyance, transfer or lease substantially all of
the assets of the
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Servicer or succeeding to all or substantially all the business of the Servicer,
where the Servicer is not the surviving entity, which corporation or other
entity assumes every obligation of the Servicer under each Trust Document, will
be the successor to the Servicer under the related Trust Documents; provided,
however, that (i) such entity is an Eligible Servicer, (ii) immediately after
giving effect to such transaction, no Servicer Termination Event, no event of
default under the agreement (if any), providing for the issuance of the Policy
(the "Insurance Agreement") (prior to an Insurer Default) and no event which,
after notice or lapse of time, or both, would become a Servicer Termination
Event or an event of default under the related Insurance Agreement, if any
(prior to an Insurer Default), shall have occurred and be continuing, (iii) the
Servicer shall have delivered to the Owner Trustee, the Indenture Trustee and
the Security Insurer (if any) an officers' certificate and an opinion of counsel
each stating that such consolidation, merger or succession and such agreement of
assumption comply with the related Trust Documents and that all conditions
precedent provided for in the Trust Documents relating to such transaction have
been complied with, and (iv) the Servicer shall have delivered an opinion of
counsel either (A) stating that, in the opinion of such counsel, all financing
statements and continuation statements and amendments thereto have been executed
and filed that are necessary fully to preserve and protect the interests of the
Owner Trustee and the Indenture Trustee in the Receivables and the other Trust
Property and reciting the details of such filings, or (B) stating that, in the
opinion of such counsel, no such action shall be necessary to preserve and
protect such interest.
INDEMNIFICATION AND LIMITS ON LIABILITY
Unless otherwise specified in the related Prospectus Supplement, the Trust
Documents will provide that the Servicer will be liable only to the extent of
the obligations specifically undertaken by it under the Trust Documents and will
have no other obligations or liabilities thereunder. The Trust Documents will
further provide that neither the Servicer nor any of its directors, officers,
employees and agents will have any liability to the Trust, the
Certificateholders or the Noteholders or the Security Insurer, if any, except as
provided in the Trust Documents, for any action taken or for refraining from
taking any action pursuant to the Trust Documents, other than any liability that
would otherwise be imposed by reason of the Servicer's breach of the Trust
Documents or willful misfeasance, bad faith or negligence (including errors in
judgment) in the performance of its duties, or by reason of reckless disregard
of obligations and duties under the Trust Documents or any violation of law.
The Servicer may, with the prior consent of the Security Insurer, if any
(prior to an Insurer Default), the Owner Trustee, the Indenture Trustee, if any,
and the Backup Servicer, delegate duties under the related Trust Documents to
any of its affiliates. In addition, the Servicer may at any time perform the
specific duty of repossessing Financed Vehicles through subcontractors who are
in the business of servicing automotive receivables. The Servicer may also
perform other specific duties through subcontractors, with the prior consent of
the Security Insurer, if any (prior to an Insurer Default); provided, however,
that no such delegation of such duties by the Servicer shall relieve the
Servicer of its responsibility with respect thereto.
SERVICER TERMINATION EVENTS
Unless otherwise provided in the related Prospectus Supplement, "Servicer
Termination Events" under the Trust Documents will consist of (i) any failure by
the Servicer to deliver to the Owner Trustee for distribution to
Certificateholders or the Indenture Trustee for distribution to Noteholders any
proceeds or payment required to be so delivered under the terms of the
Certificates, the Trust Documents, the Notes or the Indenture (or, for so long
as Arcadia Financial is the Servicer, the Purchase Agreement) that continues
unremedied for a period of two Business Days after written notice is received by
the Servicer from the Owner Trustee, the Indenture Trustee or the Security
Insurer (if any), or after discovery of such failure by a responsible officer of
the Servicer; (ii) any failure by the Servicer to deliver to the Owner Trustee
and the Indenture Trustee and the Security Insurer, if any (prior to an Insurer
Default), certain reports required by
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the Trust Documents by the fourth Business Day prior to the related Distribution
Date; (iii) failure on the part of the Servicer duly to observe or perform in
any material respect any other covenants or agreements of the Servicer set forth
in the Certificates, the Trust Documents, the Notes or the Indenture (or, for so
long as Arcadia Financial is the Servicer, the Purchase Agreement), which
failure (A) materially and adversely affects the rights of Securityholders
(determined without regard to the availability of funds under any Policy) or of
the Security Insurer, if any (prior to an Insurer Default), and (B) continues
unremedied for a period of 30 days after the date on which written notice of
such failure, requiring the same to be remedied, shall have been given to the
Servicer by the Owner Trustee, the Indenture Trustee or the Security Insurer, if
any (or, if an Insurer Default shall have occurred and be continuing, any
Securityholder); (iv)(A) the commencement of an involuntary case under the
federal bankruptcy laws, as now or hereinafter in effect, or another present or
future federal or state bankruptcy, insolvency or similar law (the "Bankruptcy
Laws"), and such case is not dismissed within 60 days; or (B) the entry of a
decree or order for relief by a court or regulatory authority having
jurisdiction in respect of the Servicer or the Seller under the Bankruptcy Laws,
or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator
or other similar official of the Servicer or the Seller or of any substantial
part of their respective properties or ordering the winding up or liquidation of
the affairs of the Servicer or the Seller; (v) the commencement by the Servicer
or the Seller of a voluntary case under any Bankruptcy Law, or the consent by
the Servicer or the Seller to the appointment of or taking possession by a
receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Servicer or the Seller or of any substantial part of the
Servicer's or the Seller's property or the making by the Servicer or the Seller
of an assignment for the benefit of creditors or the failure by the Servicer or
the Seller generally to pay its debts as such debts become due or the taking of
corporate action by the Servicer or the Seller in furtherance of any of the
foregoing; (vi) any representation, warranty or statement of the Servicer made
in the Trust Documents or any certificate, report or other writing delivered
pursuant thereto shall prove to be incorrect in any material respect as of the
time when the same shall have been made, and the incorrectness of such
representation, warranty or statement has a material adverse effect (determined
without regard to the availability of funds under any Policy) on the Trust and,
within 30 days after written notice thereof shall have been given to the
Servicer by the Owner Trustee, the Indenture Trustee or the Security Insurer, if
any (or, if an Insurer Default shall have occurred and be continuing, any
Securityholder), the circumstances or condition in respect of which such
representation, warranty or statement was incorrect shall not have been
eliminated or otherwise cured; or (vii) if applicable, unless an Insurer Default
shall have occurred and be continuing, the occurrence of an event of default
under the Insurance Agreement.
Unless otherwise specified in the related Prospectus Supplement, if a
Servicer Termination Event occurs and is continuing, the Security Insurer, if
any (or, if no Policy was issued with respect to such series or an Insurer
Default shall have occurred and be continuing, the Owner Trustee, the Indenture
Trustee (if any), or a Certificate Majority or a Note Majority), by notice then
given in writing to the Servicer (and to the Owner Trustee and the Indenture
Trustee if given by the Security Insurer or the Securityholders) may terminate
all of the rights and obligations of the Servicer under the Trust Documents.
Immediately upon the giving of such notice, and, in the case of a successor
Servicer other than the Backup Servicer, the acceptance by such successor
Servicer of its appointment, all authority of the Servicer will pass to the
Backup Servicer or other successor Servicer. In addition to any other amounts
that are then payable to the outgoing Servicer under the related Trust
Documents, the Servicer shall then be entitled to receive reimbursements for any
outstanding Monthly Advances. The Owner Trustee, the Indenture Trustee and the
successor Servicer may set off and deduct any amounts owed by the Servicer from
any amounts payable to the outgoing Servicer.
On and after the time the Servicer receives a notice of termination, the
Backup Servicer or other successor Servicer will be the successor in all
respects to the Servicer and will be subject to all the responsibilities,
restrictions, duties and liabilities of the Servicer under the related Trust
Documents; provided, however, that the successor Servicer shall have no
liability with respect to any obligation which was required to be performed by
the prior Servicer prior to the date that the successor Servicer becomes
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the Servicer or any claim of a third party (including a Securityholder) based on
any alleged action or inaction of the prior Servicer. Unless otherwise specified
in the related Prospectus Supplement, if a Policy has been issued with respect
to the series, the Security Insurer may (prior to an Insurer Default) exercise
at any time its right to appoint as Backup Servicer or as successor to the
Servicer a person other than the Backup Servicer named in the related Prospectus
Supplement. Notwithstanding the above, if the Backup Servicer shall be legally
unable or shall be unwilling to act as Servicer, and if an Insurer Default shall
have occurred or if no Policy was issued with respect to such series, the Owner
Trustee, the Indenture Trustee, a Certificate Majority or a Note Majority may
petition a court of competent jurisdiction to appoint any Eligible Servicer as
the successor to the Servicer. Pending any such appointment, the Backup Servicer
shall act as successor Servicer unless it is legally unable to do so, in which
event the outgoing Servicer shall continue to act as Servicer until a successor
has been appointed and accepted such appointment. "Eligible Servicer" means a
person which, at the time of its appointment as Servicer, (A) is servicing a
portfolio of motor vehicle retail installment sales contracts and/or motor
vehicle installment loans, (B) is legally qualified and has the capacity to
service the Receivables, (C) has demonstrated the ability to service
professionally and competently a portfolio of motor vehicle retail installment
sales contracts and/or motor vehicle installment loans similar to the
Receivables in accordance with high standards of skill and care, and (D) is
qualified and entitled to use, pursuant to a license or other written agreement,
and agrees to maintain the confidentiality of, the software which the Servicer
uses in connection with performing its duties and responsibilities under the
related Trust Documents or otherwise has available software which is adequate to
perform its duties and responsibilities under such Trust Documents.
Any successor Servicer shall be entitled to such compensation payable out of
the Collection Account as the outgoing Servicer would have been entitled to
under the Trust Documents if the outgoing Servicer had not resigned or been
terminated, except as otherwise provided in the Trust Documents.
Upon any termination of, or appointment of a successor to, the Servicer, the
Owner Trustee and the Indenture Trustee (if any) will each give prompt written
notice thereof to Certificateholders and Noteholders, respectively, at their
respective addresses appearing in the Certificate Register or the Note Register,
to the Security Insurer, if any (prior to an Insurer Default) and to each Rating
Agency.
Unless otherwise specified in the related Prospectus Supplement, if a Policy
has been issued with respect to a series, the Security Insurer (or, if an
Insurer Default shall have occurred and be continuing, a Certificate Majority or
Note Majority) may waive any Servicer Termination Event.
AMENDMENT
Unless otherwise provided in the related Prospectus Supplement, the Trust
Documents may be amended by the Seller, the Servicer, the Owner Trustee and the
Indenture Trustee, if any, with the prior written consent of the Security
Insurer, if any (prior to an Insurer Default), but without the consent of any of
the Securityholders, to cure any ambiguity or to correct or supplement any
provision therein, provided that such action will not, in the opinion of counsel
(which may be internal counsel to the Seller, Arcadia Financial or the Servicer)
reasonably satisfactory to the Owner Trustee and the Indenture Trustee,
materially and adversely affect the interests of the Securityholders. The Trust
Documents may also be amended by the Seller, the Servicer and the Owner Trustee
and the Indenture Trustee (if any), with the prior written consent of the
Security Insurer, if any (prior to an Insurer Default), and a Certificate
Majority and a Note Majority (if applicable), for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Trust Documents or of modifying, in any manner, the rights of the
Certificateholders or the Noteholders. No such amendment may (i) increase or
reduce in any manner the amount of, or accelerate or delay the timing of,
collections of payments on the related Receivables or distributions that are
required to be made on any related Certificate or Note or the related
Pass-Through Rate or Interest Rate or (ii) reduce the percentage of the
Certificate Balance evidenced by Certificates or of the aggregate principal
amount of Notes then outstanding required to consent to any such amendment,
without the consent of the holders of all Certificates or all Notes, as the case
may be, then outstanding.
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TERMINATION
Unless otherwise provided in the related Prospectus Supplement, with respect
to each Trust, the Trust and the respective obligations of the Seller, the
Servicer, the Security Insurer (if any), the Owner Trustee and the Indenture
Trustee pursuant to the related Trust Documents will terminate upon the later of
(i) the Distribution Date or Payment Date, as the case may be, immediately
following the maturity or other liquidation of the last Receivable (including
the Seller's or Servicer's purchase of the Receivables, as described below) or
(ii) payment to Certificateholders and Noteholders of all amounts required to be
paid to them pursuant to the related Trust Documents and the related Indenture
and the payment to the Security Insurer, if any, of all amounts payable or
reimbursable to it pursuant to the related Insurance Agreement, if any, and in
either case there shall be delivered to the Owner Trustee and the Indenture
Trustee an opinion of counsel that all applicable preference periods under
federal, state and local bankruptcy, insolvency and similar laws have expired
with respect to the payments made pursuant to clause (i) or (ii) above.
Unless otherwise provided in the related Prospectus Supplement, with respect
to each series of Securities, in order to avoid excessive administrative
expense, the Seller and Servicer each will be permitted, at its option (with the
consent of the Security Insurer, if any (prior to an Insurer Default), if such
purchase would result in a claim on the Policy or in an amount owing to the
Security Insurer under the Insurance Agreement remaining unpaid), to purchase
from the Trust, on any Distribution Date immediately following an Accounting
Date as of which the Aggregate Principal Balance is equal to or less than 10%
(or such other percentage as may be specified in the related Prospectus
Supplement) of the Cutoff Date Principal Balance, all remaining Receivables in
the related Trust and the other remaining Trust Property at a price equal to the
aggregate of the Purchase Amounts therefor and the appraised value of any other
remaining Trust Property. The exercise of this right will effect an early
retirement of the related Certificates and Notes.
Unless otherwise specified in the related Prospectus Supplement, with
respect to each series of Securities, the Owner Trustee will give written notice
of the final distribution with respect to the Certificates (if any) to each
Certificateholder of record and the Indenture Trustee will give written notice
of the final payment with respect to the Notes (if any), to each Noteholder of
record. The final distribution to any Certificateholder and the final payment to
any Noteholder will be made only upon surrender and cancellation of such
holder's Certificate or Note at the office or agency of the Owner Trustee, with
respect to Certificates, or of the Indenture Trustee, with respect to Notes,
specified in the notice of termination. Any funds remaining in the Trust, after
the Owner Trustee or the Indenture Trustee has taken certain measures to locate
a Certificateholder or Noteholder, as the case may be, and such measures have
failed, will be distributed to The United Way, and the Certificateholders and
Noteholders, by acceptance of their Certificates and Notes, will waive any
rights with respect to such funds.
THE OWNER TRUSTEE
The Owner Trustee for each Trust will be specified in the related Prospectus
Supplement. The Owner Trustee, in its individual capacity or otherwise, and any
of its affiliates may hold Certificates or Notes in their own names or as
pledgee. In addition, for the purpose of meeting the legal requirements of
certain jurisdictions, the Owner Trustee, with the consent of the Servicer and
the Security Insurer, if any (so long as an Insurer Default shall not have
occurred and be continuing), shall have the power to appoint co-trustees or
separate trustees of all or any part of the related Trust. In the event of such
appointment, all rights, powers, duties and obligations conferred or imposed
upon the Owner Trustee by the related Trust Documents will be conferred or
imposed upon the Owner Trustee and such separate trustee or co-trustee jointly,
or, in any jurisdiction where the Owner Trustee is incompetent or unqualified to
perform certain acts, singly upon such separate trustee or co-trustee who shall
exercise and perform such rights, powers, duties and obligations solely at the
direction of the Owner Trustee.
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The Owner Trustee of any Trust may resign at any time, in which event the
General Partner, if any, specified in the related Prospectus Supplement or, if
no such General Partner is specified, the Servicer or its successor will be
obligated to appoint a successor trustee, acceptable to the Security Insurer, if
any (prior to an Insurer Default). The General Partner, if any, specified in the
related Prospectus Supplement or, if no such General Partner is specified, the
Servicer may also remove the Owner Trustee, with the consent of the Security
Insurer, if any (prior to an Insurer Default), if the Owner Trustee ceases to be
eligible to serve, becomes legally unable to act, is adjudged insolvent or is
placed in receivership or similar proceedings. In such circumstances, the
General Partner, if any, specified in the related Prospectus Supplement or, if
no such General Partner is specified, the Servicer will be obligated to appoint
a successor trustee, acceptable to the Security Insurer, if any (prior to an
Insurer Default). Any resignation or removal of the Owner Trustee and
appointment of a successor trustee will not become effective until acceptance of
the appointment by the successor trustee.
DUTIES OF THE OWNER TRUSTEE
The Owner Trustee will make no representation as to the validity or
sufficiency of any Trust Document, the Certificates or the Notes (other than its
execution of the Certificates and the Notes), the Receivables, the Policy, if
any, or any related documents, and will not be accountable for the use or
application by the Servicer of any funds paid to the Servicer in respect of the
Certificates, the Notes or the Receivables prior to deposit in the related
Collection Account.
The Owner Trustee will be required to perform only those duties specifically
required of it under the Trust Documents. Generally, those duties will be
limited to the receipt of the various certificates, reports or other instruments
required to be furnished by the Servicer to the Owner Trustee under the Trust
Documents, in which case it will only be required to examine such certificates,
reports or instruments to determine whether they conform substantially to the
requirements of the Trust Documents.
The Owner Trustee will be under no obligation to exercise any of the rights
or powers vested in it by the Trust Documents or to institute, conduct, or
defend any litigation thereunder or in relation thereto at the request, order or
direction of any of the Certificateholders or Noteholders, unless such
Certificateholders or Noteholders have offered the Owner Trustee reasonable
security or indemnity against the costs, expenses and liabilities which may be
incurred therein or thereby. No Certificateholder nor any Noteholder will have
any right under the Trust Documents to institute any proceeding with respect to
such Trust Documents, unless such holder has given the Owner Trustee written
notice of default and unless the holders of Certificates evidencing not less
than 25% of the Certificate Balance or the holders of Notes evidencing not less
than 25% of the aggregate principal balance of the Notes then outstanding, as
the case may be, have made written request to the Owner Trustee to institute
such proceeding in its own name as Trustee thereunder and have offered to the
Owner Trustee reasonable indemnity, and the Owner Trustee for 30 days after the
receipt of such notice, request and offer to indemnify has neglected or refused
to institute any such proceedings. Certificateholders and Noteholders will not
have the right to make a claim directly under any Policy issued with respect to
such series, but in the event that the Owner Trustee or the Indenture Trustee
fails to make such a claim, Certificateholders and Noteholders may compel the
Owner Trustee or the Indenture Trustee, as applicable, to do so.
THE BACKUP SERVICER
The Backup Servicer for each Trust will be specified in the related
Prospectus Supplement, although the Security Insurer, if any (prior to an
Insurer Default), may exercise its right at any time to appoint another Backup
Servicer. While Arcadia Financial is the Servicer, the Backup Servicer will not
be liable or responsible for any obligation of the Servicer, and the
Certificateholders and Noteholders may look only to Arcadia Financial to perform
such obligations. The Backup Servicer will be required to verify the monthly
Servicer's Certificate each month, to reconcile any discrepancies with the
Servicer, to notify the Certificateholders (if any), the Noteholders and the
Security Insurer (if any) of any unreconciled item that appears
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substantially out of the ordinary, and to seek a written explanation of any such
unreconciled item from the Servicer; however, neither the Owner Trustee nor the
Backup Servicer will be required to otherwise monitor the Servicer. Upon the
Servicer's receipt of a termination notice after the occurrence of a Servicer
Termination Event, the Backup Servicer will automatically become the Servicer,
unless the Security Insurer, if any (prior to an Insurer Default), shall have
appointed a different Backup Servicer or successor Servicer. To facilitate the
transfer of servicing responsibility, the Servicer will deliver to the Owner
Trustee and the Backup Servicer each month a computer tape containing
information with respect to the Receivables.
ADMINISTRATOR
If an Administrator is specified in the related Prospectus Supplement, such
Administrator will enter into an agreement (the "Administration Agreement")
pursuant to which such Administrator will agree, to the extent provided in such
Administration Agreement, to provide the notices and to perform other
administrative obligations required by the related Indenture and the Trust
Agreement.
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CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
RIGHTS IN THE RECEIVABLES
The Receivables are "chattel paper" as defined in the UCC as in effect in
the States of Minnesota and New York. Pursuant to the UCC, an ownership interest
in chattel paper may be perfected by possession or by filing a UCC-1 financing
statement in the state where the seller's principal executive office is located.
Accordingly, financing statements covering the Receivables will be filed by
Arcadia Financial and the Seller in Minnesota. In addition, the documents
evidencing the Receivables initially will be held by the Custodian specified in
the related Prospectus Supplement on behalf of the related Trust.
The Servicer will be obligated from time to time to take such actions as are
necessary to continue the perfection of each Trust's interest in the related
Receivables and the proceeds thereof. Arcadia Financial will warrant in each
Purchase Agreement with respect to the Receivables held by the related Trust,
and in the related Trust Document the Seller will assign the right to enforce
such warranties to the Owner Trustee on behalf of such Trust and the Owner
Trustee will pledge such right to the Indenture Trustee as collateral for the
Notes, if any, that, as of the Closing Date, such Receivables have not been
sold, pledged or assigned by Arcadia Financial or the Seller to any other
person, and that it has good and indefeasible title thereto and is the sole
owner thereof free of any Liens and that, immediately upon the transfer of the
Receivables to such Trust pursuant to the related Trust Document, the Trust will
have good and indefeasible title to and will be the sole owner of the
Receivables, free of any Liens. In the event of an uncured breach of any of such
warranties in a Purchase Agreement that materially and adversely affects the
related Trust's, Certificateholders' or Noteholders' interest in any Receivable
(a "Repurchase Event"), Arcadia Financial will be obligated to repurchase such
Receivable.
Unless otherwise provided in the related Prospectus Supplement, Arcadia
Financial will hold the Receivable Files on behalf of each Trust under a
custodian agreement with the Trust. The Receivable Files, if held by Arcadia
Financial as custodian, will be stamped or otherwise marked to indicate that
such Receivables have been sold to the related Trust. The Receivable Files will
also be physically segregated. Despite these precautions, if, through
inadvertence or otherwise, any of the Receivables were sold to another party (or
a security interest therein were granted to another party) that purchased (or
took such security interest in) any of such Receivables in the ordinary course
of its business and took possession of such Receivables, the purchaser (or
secured party) would acquire an interest in the Receivables superior to the
interest of the related Trust if the purchaser (or secured party) acquired (or
took a security interest in) the Receivables for new value and without actual
knowledge of such Trust's interest. See "Description of the Purchase Agreements
and the Trust Documents-Custody of Receivable Files."
SECURITY INTERESTS IN THE FINANCED VEHICLES
Security interests in the Financed Vehicles must be perfected by notation of
the secured party's lien on the certificate of title or by such notation on or
actual possession of the certificate of title, depending on the law of the state
wherein the purchaser resides. The practice of Arcadia Financial is to take such
action as is required to perfect its security interest under the laws of the
state in which the Financed Vehicle is registered. In the event of clerical
errors, administrative delays or otherwise, such actions may not have been taken
with respect to a Financed Vehicle and such security interest may be subordinate
to the interests of, among others, subsequent purchasers of the Financed
Vehicles, holders of perfected security interests in the Financed Vehicle, and
the trustee in bankruptcy of the Obligor. However, such failure would give rise
to a Repurchase Event and obligate Arcadia Financial to repurchase the affected
Receivable if the interests of the related Certificateholders, Noteholders or
Trust were materially and adversely affected.
Pursuant to the related Trust Document, the Seller will assign the security
interests in the Financed Vehicles assigned to it by Arcadia Financial under the
related Purchase Agreement to the Owner Trustee on behalf of the related Trust.
However, because of the administrative burden and expense that would be
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entailed in doing so, none of Arcadia Financial, the Seller, the Owner Trustee
or the Servicer will be required, except to the extent provided below, to amend
the certificates of title (or other lien certificates) to identify the Owner
Trustee (or the Seller) as the new secured party and, accordingly, Arcadia
Financial will continue to be named as the secured party on the certificates of
title (or other lien certificate) relating to the Financed Vehicles. Further,
the Servicer will be required to note the interest of the related Trust on the
certificates of title for the Financed Vehicles only upon a Servicer Termination
Event, or in an event of default under the Insurance Agreement, if any (prior to
an Insurer Default), or (under certain circumstances and unless an Insurer
Default shall have occurred and be continuing) at the request of the Security
Insurer, if any. In most states, an assignment such as that under the related
Trust Documents should be an effective transfer of a security interest without
amendment of any lien noted on the related certificate of title, and the
assignee should succeed to the assignor's status as the secured party. In the
absence of fraud or forgery by the Obligor or administrative error by state
recording officials, the notation of the lien of Arcadia Financial on the
certificate of title should be sufficient to protect the related Trust against
the rights of subsequent purchasers of a vehicle or subsequent lenders who take
a security interest in the related Financed Vehicle. However, in the absence of
such an amendment, the security interest of the related Trust in the related
Financed Vehicles might be defeated by, among others, the trustee in bankruptcy
of Arcadia Financial or the Obligor. However, such failure would give rise to a
Repurchase Event and obligate Arcadia Financial to repurchase the affected
Receivable if the interests of the related Certificateholders, Noteholders or
Trust were materially and adversely affected.
In most states, a perfected security interest in a motor vehicle continues
for four months after the vehicle is moved to a different state and thereafter
until the owner re-registers the motor vehicle in the new state, but in no event
beyond the surrender of the certificate of title. A majority of states require
surrender of a certificate of title to re-register a motor vehicle. Accordingly,
the secured party must surrender possession if it holds the certificate of title
to such vehicle. In the case of motor vehicles registered in states which
provide for notation of a lien but not possession of the certificate of title by
the holder of the security interest in the related motor vehicle, the secured
party should receive notice of surrender if the security interest in the vehicle
is noted on the certificate of title. Accordingly, the secured party should have
the opportunity to re-perfect its security interest in the vehicle in the state
of relocation. In states that do not require a certificate of title for
registration of a motor vehicle, re-registration could defeat perfection.
In the ordinary course of servicing its receivables portfolio, it is the
practice of Arcadia Financial to effect such re-perfection upon receipt of
notice of re-registration or information from the Obligor as to relocation.
Similarly, when an Obligor sells a Financed Vehicle, Arcadia Financial must
surrender possession of the certificate of title or receive notice as a result
of its lien noted thereon and accordingly should have an opportunity to require
satisfaction of the related Receivable before release of the lien. Under the
related Trust Document, the Servicer will be obligated to take such steps, at
the Servicer's expense, as are necessary to maintain perfection of security
interest in such Financed Vehicle, and the failure to take such steps would
obligate the Servicer to purchase the related Receivable if such failure
materially and adversely affects the interests of the related
Certificateholders, Noteholders and Trust in such Receivables.
Under the laws of most states, liens for repairs performed on a motor
vehicle and liens for unpaid taxes take priority over even a perfected security
interest in a motor vehicle. The Seller in the related Trust Document (and
Arcadia Financial in the related Purchase Agreement) will represent that,
immediately prior to the sale, assignment and transfer thereof to the related
Trust, each Receivable held by such Trust was secured by a valid, subsisting and
enforceable first priority perfected security interest in favor of the Seller
(or Arcadia Financial), as secured party. However, liens for taxes, judicial
liens or liens arising by operation of law could arise at any time during the
term of a Receivable. In addition, the laws of certain states and federal law
permit the confiscation of motor vehicles by governmental authorities under
certain circumstances if used in unlawful activities, which may result in the
loss of a secured party's perfected
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security interest in the confiscated motor vehicle. No notice will be given to
the Owner Trustee, Indenture Trustee, Certificateholders or Noteholders in the
event such a lien or confiscation arises, and if such lien arises or
confiscation occurs after the date of issuance of any series of Certificates and
Notes, neither Arcadia Financial nor the Servicer will be required to repurchase
or purchase the related Receivable.
REPOSSESSION
In the event of default by an Obligor, the owner of a retail installment
sales contract or installment loan has all the remedies of a secured party under
the UCC, except where specifically limited by other state laws. The remedies of
a secured party under the UCC include the right to repossession by self-help
means, unless such means would constitute a breach of the peace. Self-help
repossession is the method employed by Arcadia Financial in most cases and is
accomplished simply by taking possession of the motor vehicle. In the event of
default by the Obligor, some jurisdictions require that the Obligor be notified
of the default and be given a time period within which he may cure the default
prior to repossession. In cases where the Obligor objects or raises a defense to
repossession, or if otherwise required by applicable state law, a court order
must be obtained from the appropriate state court, and the vehicle must then be
repossessed in accordance with that order. Other jurisdictions permit
repossession without notice, but only if the repossession can be accomplished
peacefully. If a breach of the peace cannot be avoided, judicial action is
required. A secured party may be held responsible for damages caused by a
wrongful repossession of a vehicle, including, in Florida, a wrongful
repossession conducted by an agent of the secured party. The Servicer will be
required to indemnify the related Trust for any liability imposed upon such
Trust as a result of a wrongful repossession. In Texas and many other states, a
vehicle may be repossessed without notice to the Obligor, but only if the
repossession can be accomplished without a breach of the peace.
NOTICE OF SALE; REDEMPTION RIGHTS
The UCC and various other state laws require a secured party who has
repossessed the collateral securing an obligation to provide an obligor with
reasonable notice of the date, time and place of any public sale and/or the date
after which any private sale of the collateral may be held. The obligor has the
right to redeem the collateral prior to actual sale by paying the secured party
the entire unpaid time balance of the obligation (less any unaccrued finance
charges) plus accrued default charges, reasonable expenses for repossessing,
holding and preparing the collateral for disposition and arranging for its sale,
plus, to the extent provided in the financing documents, reasonable attorneys'
fees, or in some states, by payment of delinquent installments or the unpaid
principal balance of the related obligation.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of resale of Financed Vehicles generally will be applied first
to the expenses of repossession and resale and then to the satisfaction of the
related Receivables. While some states impose prohibitions or limitations on
deficiency judgments if the net proceeds from resale do not cover the full
amount of the indebtedness, a deficiency judgment can be sought in other states
that do not prohibit or limit such judgments, subject to satisfaction of
statutory procedural requirements by the holder of the obligation. However, any
deficiency judgment would be a personal judgment against the Obligor for the
shortfall, and a defaulting Obligor can be expected to have very little capital
or sources of income available following repossession. Therefore, in many cases,
it may not be useful to seek a deficiency judgment or, if one is obtained, it
may be settled at a significant discount or not paid at all. Arcadia Financial
generally seeks to recover any deficiency existing after repossession and sale
of a Financed Vehicle.
Occasionally, after resale of a repossessed motor vehicle, and payment of
all expenses and indebtedness, there is a surplus of funds. In that case, the
law of most states requires the secured party to remit the surplus to any holder
of another lien with respect to the vehicle, if proper notification of demand
for proceeds is received prior to distribution, or, if no such lienholder
exists, to remit the surplus to the former owner of the motor vehicle.
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SOLDIERS' AND SAILORS' CIVIL RELIEF ACT
The Relief Act imposes certain limitations upon the actions of creditors
with respect to persons serving in the Armed Forces of the United States and, to
a more limited extent, their dependents and guarantors and sureties of debt
incurred by such persons. An obligation incurred by a person prior to entering
military service cannot bear interest at a rate in excess of 6% during the
person's term of military service, unless the obligee petitions a court which
determines that the person's military service does not impair his or her ability
to pay interest at a higher rate. Further, a secured party may not repossess
during a person's military service a motor vehicle subject to an installment
sales contract or a promissory note entered into prior to the person's entering
military service, for a loan default which occurred prior to or during such
service, without court action. The Relief Act imposes penalties for knowingly
repossessing property in contravention of its provisions. Additionally,
dependents of military personnel are entitled to the protection of the Relief
Act, upon application to a court, if such court determines the obligation of
such dependent has been materially impaired by reason of the military service.
To the extent an obligation is unenforceable against the person in military
service or a dependent, any guarantor or surety of such obligation will not be
liable for performance.
CONSUMER PROTECTION LAWS
Numerous Federal and state consumer protection laws and related regulations
impose substantive and disclosure requirements upon lenders and servicers
involved in consumer finance. Some of the Federal laws and regulations include
the Truth-in-Lending Act, the Equal Credit Opportunity Act, the Federal Trade
Commission Act, the Fair Credit Reporting Act, the Fair Debt Collection
Practices Act, the Motor Vehicle Information and Cost Savings Act (the "Odometer
Act"), the Magnuson-Moss Warranty Act, and the Federal Reserve Board's
Regulations B and Z.
In addition to Federal law, state consumer protection statutes regulate,
among other things, the terms and conditions of the motor vehicle retail
installment contracts and promissory notes pursuant to which purchasers finance
the acquisition of motor vehicles. These laws place finance charge ceilings on
the amount that a creditor may charge in connection with financing the purchase
of an automobile. These laws also impose other restrictions on consumer
transactions and require contract disclosures in addition to those required
under federal law. These requirements impose specific statutory liabilities upon
creditors who fail to comply. In some cases, this liability could affect the
ability of an assignee, such as the Trustee, to enforce consumer finance
contracts such as the Receivables. The "Credit Practices" Rule of the Federal
Trade Commission (the "FTC") imposes additional restrictions on contract
provisions and credit practices.
The FTC's so-called holder-in-due-course rule has the effect of subjecting
persons that finance consumer credit transactions (and certain related lenders
and their assignees) to all claims and defenses which the purchaser could assert
against the seller of the goods and services. An assignee's affirmative
liability to pay money to such aggrieved purchaser in the event of a successful
claim is limited to amounts paid by the purchaser under the consumer credit
contract. However, the assignee's ability to collect any balance remaining due
thereunder is subject to these claims and defenses. Accordingly, each Trust, as
assignee of the related Receivables, will be subject to claims or defenses, if
any, that the purchaser of the related Financed Vehicle may assert against the
seller of such vehicle. Under the motor vehicle dealer licensing laws of most
states, sellers of motor vehicles are required to be licensed to sell motor
vehicles at retail.
In addition, with respect to used vehicles, the FTC's Rule on Sale of Used
Vehicles requires that all sellers of used vehicles prepare, complete, and
display a "Buyer's Guide" which explains the warranty coverage for such
vehicles. Federal regulations promulgated under the Odometer Act require that
all sellers of used vehicles furnish a written statement signed by the seller
certifying the accuracy of the odometer readings. If a seller is not properly
licensed or if either a Buyer's Guide or odometer disclosure
48
<PAGE>
statement was not provided to the purchaser of a Financed Vehicle, the purchaser
may be able to assert a defense as to a retail installment sales contract or
promissory note against the seller of the motor vehicle.
Under the Texas Credit Code ("TCC") non-bank retail installment sellers and
their assignees are required to register with the Office of Consumer Credit
Commissioner of Texas. The TCC, like the UCCC, imposes disclosure and
substantive requirements on the sellers and any subsequent holder of such
contracts and imposes monetary penalties for violations thereof.
Courts have applied general equitable principles to secured parties pursuing
repossession or litigation involving deficiency balances. These equitable
principles may have the effect of relieving an Obligor from some or all of the
legal consequences of a default.
The Seller will warrant in the related Trust Document (and Arcadia Financial
will warrant in the related Purchase Agreement) that as of the date of
origination each Receivable held by the related Trust complied with all
requirements of applicable law in all material respects. Accordingly, if such
Trust's interest in a Receivable were materially and adversely affected by a
violation of any such law, such violation would constitute a Repurchase Event
and would obligate Arcadia Financial to repurchase the Receivable unless the
breach were cured. Under each Purchase Agreement, Arcadia Financial will be
required to indemnify the related Trust for any liability resulting from the
failure of a Receivable to be in compliance with all requirements of law. See
"Description of the Purchase Agreements and the Trust Documents-Sale and
Assignment of the Receivables."
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including Federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a lender to
realize upon collateral or enforce a deficiency judgment. For example, in a
proceeding under Chapter 13 of the U.S. Bankruptcy Code of 1978, as amended, a
court may prevent a lender from repossessing a motor vehicle, and, as part of
the rehabilitation plan, reduce the amount of the secured indebtedness to the
market value of the motor vehicle at the time of bankruptcy (as determined by
the court), leaving the party providing financing as a general unsecured
creditor for the remainder of the indebtedness. A bankruptcy court may also
reduce the monthly payments due under a contract, change the rate of interest
and time of repayment of the indebtedness or substitute collateral securing such
indebtedness.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The anticipated federal income tax consequences of the purchase, ownership
and disposition of each series of Securities will be discussed in the related
Prospectus Supplement. Such discussion will not deal with federal income tax
consequences applicable to all categories of investors, some of which may be
subject to special rules. Investors should consult their own tax advisors in
determining the federal, state, local and any other tax consequences to them of
the purchase, ownership and disposition of the Securities.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and Section 4975 of the Code prohibit a pension, profit
sharing or other employee benefit plan from engaging in certain transactions
involving "plan assets" with persons that are "parties in interest" under ERISA
or "disqualified persons" under the Code with respect to the plan. ERISA also
imposes certain duties and certain prohibitions on persons who are fiduciaries
of plans subject to ERISA. Under ERISA, generally any person who exercises any
authority or control with respect to the management or disposition of the assets
of a plan is considered to be a fiduciary of such plan. A violation of these
"prohibited transaction" rules may generate excise tax and other liabilities
under ERISA and the Code for such persons.
49
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Certain transactions involving the related Trust might be deemed to
constitute prohibited transactions
under ERISA and the Code with respect to a Benefit Plan that purchased
Securities if assets of the related Trust were deemed to be assets of the
Benefit Plan. Under a regulation issued by the United States Department of Labor
(the "Plan Assets Regulation"), the assets of a Trust would be treated as plan
assets of a Benefit Plan for the purposes of ERISA and the Code only if the
Benefit Plan acquired an "equity interest" in the Trust and none of the
exceptions contained in the Plan Assets Regulation was applicable. An equity
interest is defined under the Plan Assets Regulation as an interest other than
an instrument which is treated as indebtedness under applicable local law and
which has no substantial equity features. The likely treatment of Notes and
Certificates will be discussed in the related Prospectus Supplement.
Employee benefit plans that are governmental plans (as defined in Section
3(32) of ERISA) and certain church plans (as defined in Section 3(33) of ERISA)
are not subject to ERISA requirements.
A plan fiduciary considering the purchase of Securities should consult its
tax and/or legal advisors regarding whether the assets of the Trust would be
considered plan assets, the possibility of exemptive relief from the prohibited
transaction rules and other issues and their potential consequences.
PLAN OF DISTRIBUTION
On the terms and conditions set forth in an underwriting agreement (the
"Underwriting Agreement") with respect to each Trust, the Seller will agree to
sell to each of the underwriters named therein and in the related Prospectus
Supplement, and each of such underwriters will severally agree to purchase from
the Seller, the principal amount of each class of Securities of the related
series set forth therein and in the related Prospectus Supplement.
In each Underwriting Agreement, the several underwriters will agree, subject
to the terms and conditions set forth therein, to purchase all the Securities
described therein which are offered hereby and by the related Prospectus
Supplement if any of such Securities are purchased. In the event of a default by
any such underwriter, each Underwriting Agreement will provide that, in certain
circumstances, purchase commitments of the nondefaulting underwriters may be
increased, or the Underwriting Agreement may be terminated.
Each Prospectus Supplement will either (i) set forth the price at which each
class of Securities being offered thereby will be offered to the public and any
concessions that may be offered to certain dealers participating in the offering
of such Securities or (ii) specify that the related Securities are to be resold
by the underwriters in negotiated transactions at varying prices to be
determined at the time of such sale. After the initial public offering of any
Securities, the public offering price and such concessions may be changed.
Each Underwriting Agreement will provide that Arcadia Financial and the
Seller will indemnify the underwriters against certain liabilities, including
liabilities under the Securities Act.
The Indenture Trustee, if any, may, from time to time, invest the funds in
the Designated Accounts in Eligible Investments acquired from the underwriters.
Under each Underwriting Agreement, the closing of the sale of any class of
Securities subject thereto will be conditioned on the closing of the sale of all
other such classes.
The place and time of delivery for the Securities in respect of which this
Prospectus is delivered will be set forth in the related Prospectus Supplement.
LEGAL MATTERS
Certain matters with respect to the validity of the Certificates and the
Notes will be passed upon for the Seller by Dorsey & Whitney LLP, Minneapolis,
Minnesota. The validity of the Certificates and the Notes will be passed upon
for the underwriters named in the related Prospectus Supplement by Mayer, Brown
& Platt, New York, New York.
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INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM PAGE
- --------------------------------------- ------------
<S> <C>
Accounting Date........................ 32
Administration Agreement............... 44
Administrative Receivables............. 12, 36
Aggregate Principal Balance............ 7
APR.................................... 17
Arcadia Financial...................... 1
Backup Servicer........................ 3
Balloon Payment Receivable............. 18
Bankruptcy Laws........................ 40
Cedel.................................. 27
Cedel Participants..................... 27
Certificateholders..................... 3
Certificate Distribution Account....... 33
Certificate Majority................... 26
Certificate Owners..................... 9
Certificate Pool Factor................ 18
Certificates........................... 1
Collection Account..................... 8
Commission............................. 2
Computer Tape.......................... 32
Cooperative............................ 28
Cutoff Date............................ 1
Dealer Agreements...................... 12
Dealer Assignments..................... 12
Dealers................................ 5
Deposit Date........................... 32
Depositaries........................... 25
Depository............................. 20
Definitive Certificates................ 26
Definitive Notes....................... 26
Designated Accounts.................... 33
Distribution Date...................... 20
DTC.................................... 1
Eligible Account....................... 33
Eligible Investments................... 34
Electronic Ledger...................... 32
Eligible Servicer...................... 41
Euroclear.............................. 28
Euroclear Operator..................... 28
Euroclear Participants................. 27
Events of Default...................... 22
Exchange Act........................... 2
ERISA.................................. 49
Financed Vehicles...................... 5
FTC.................................... 48
Indenture.............................. 1
Indenture Trustee...................... 1, 3
Indirect participants.................. 26
Insolvency Laws........................ 11
Insurance Agreement.................... 39
Insurer Default........................ 8
Interest Rate.......................... 5
Lien................................... 31
Liquidated Receivable.................. 16
Liquidation Proceeds................... 8
Loan................................... 13
Lockbox Account........................ 34
Lockbox Bank........................... 34
Monthly Advance........................ 7
Monthly Period......................... 36
<CAPTION>
TERM PAGE
- --------------------------------------- ------------
<S> <C>
NADA................................... 14
Note Distribution Account.............. 33
Note Majority.......................... 22
Note Owners............................ 9
Note Pool Factor....................... 18
Noteholders............................ 4
Notes.................................. 1
Obligor................................ 7
Odometer Act........................... 48
Owner Trustee.......................... 1, 3
Participants........................... 26
Pass-Through Rate...................... 4
Payment Date........................... 21
Plan Assets Regulation................. 50
Policy................................. 6
Pooling and Servicing Agreement........ 1
Pre-Funded Amount...................... 6
Pre-Funding Account.................... 4
Pre-Funding Period..................... 4
Prospectus Supplement.................. 1
Purchase Agreement..................... 6, 30
Purchase Amount........................ 32
Rating Agency.......................... 9
Receivable Files....................... 13
Receivables............................ 1, 5
Receivables Pool....................... 5
Registration Statement................. 2
Related Documents...................... 24
Relief Act............................. 31
Repurchase Event....................... 6, 8, 32, 45
Required Deposit Rating................ 33
Rules.................................. 26
Sale and Servicing Agreement........... 1
Scheduled Payment...................... 16
Schedule of Receivables................ 30
Securities............................. 1
Securitization......................... 19
Security Insurer....................... 6
Securityholders........................ 2
Seller................................. 1, 3
Servicer............................... 3
Servicer Responsible Officer........... 38
Servicer's Certificate................. 28
Servicer Termination Events............ 39
Servicing Fee.......................... 7
Servicing Rate......................... 36
Strip Certificates..................... 4
Strip Notes............................ 5
Subsequent Receivables................. 1, 6
TCC.................................... 49
Terms and Conditions................... 28
Trust.................................. 1, 3
Trust Agreement........................ 1
Trust Documents........................ 1, 30
Trust Property......................... 1, 5
UCC.................................... 10
Underwriting Agreement................. 50
Warehousing Subsidiaries............... 30
Warranty Receivables................... 12
</TABLE>
51
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ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the Securities will be available
only in book-entry form (the "Global Securities"). Investors in the Global
Securities may hold such Global Securities through any of The Depository Trust
Company ("DTC"), Cedel Bank, societe anonyme ("Cedel") or the Euroclear System
("Euroclear"). The Global Securities will be tradeable as home market
instruments in both the European and U.S. domestic markets. Initial settlement
and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities through
Cedel and Euroclear will be conducted in the ordinary way in accordance with
their normal rules and operating procedures and in accordance with conventional
eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities through
DTC will be conducted according to the rules and procedures applicable to U.S.
corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Global Securities will be effected on a
delivery-against-payment basis through the respective Depositaries of Cedel and
Euroclear (in such capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities will
be represented through financial institutions acting on their behalf as direct
and indirect Participants in DTC. As a result, Cedel and Euroclear will hold
positions on behalf of their participants through their respective Depositaries,
which in turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to U.S. corporate debt obligations. Investor
securities custody accounts will be credited with their holdings against payment
in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
TRADING BETWEEN DTC PARTICIPANTS. Secondary market trading between DTC
Participants will be settled using the procedures applicable to U.S. corporate
debt obligations in same-day funds.
TRADING BETWEEN CEDEL AND/OR EUROCLEAR PARTICIPANTS. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
TRADING BETWEEN DTC SELLER AND CEDEL OR EUROCLEAR PURCHASER. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a Cedel Participant or a Euroclear
A-1
<PAGE>
Participant, the purchaser will send instructions to Cedel or Euroclear through
a Cedel Participant or Euroclear Participant at least one business day prior to
settlement. Cedel or Euroclear will instruct the respective Depositary, as the
case may be, to receive the Global Securities against payment. Payment will
include interest accrued on the Global Securities from and including the last
coupon payment date to and excluding the settlement date. Payment will then be
made by the respective Depositary to the DTC Participant's account against
delivery of the Global Securities. After settlement has been completed, the
Global Securities will be credited to the respective clearing system and by the
clearing system, in accordance with its usual procedures, to the Cedel
Participant's or Euroclear Participant's account. The securities credit will
appear the next day (European time) and the cash debit will be back-valued to,
and the interest on the Global Securities will accrue from, the value date
(which would be the preceding day when settlement occurred in New York). If
settlement is not completed on the intended value date (i.e., the trade fails),
the Cedel or Euroclear cash debit will be valued instead as of the actual
settlement date.
Cedel Participants and Euroclear Participants will need to make available to
the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-position funds for
settlement, either from cash or hand or existing lines of credit, as they would
for any settlement occurring within Cedel or Euroclear. Under this approach,
they may take on credit exposure to Cedel or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them. Cedel Participants or Euroclear Participants can elect not to pre-position
funds and allow that credit line to be drawn upon to finance settlement. Under
this procedure, Cedel Participants or Euroclear Participants purchasing Global
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each Cedel Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective Depositary for the benefit of Cedel Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participant a cross-market transaction will
settle no differently than a trade between two DTC Participants.
TRADING BETWEEN CEDEL OR EUROCLEAR SELLER AND DTC PURCHASER. Due to time
zone differences in their favor, Cedel Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through the
respective Depositary, to a DTC Participant. The seller will send instructions
to Cedel or Euroclear through a Cedel Participant or Euroclear Participant at
least one business day prior to settlement. In these cases, Cedel or Euroclear
will instruct the respective Depositary, as appropriate, to deliver the bonds to
the DTC Participant's account against payment. Payment will include interest
accrued on the Global Securities from and including the last coupon payment date
to and excluding the settlement date. The payment will then be reflected in the
account of the Cedel Participant or Euroclear Participant the following day, and
receipt of the cash proceeds in the Cedel Participant's or Euroclear
Participant's account would be back-valued to the value date (which would be the
preceding day, when settlement occurred in New York). Should the Cedel
Participant or Euroclear Participant have a line of credit with its respective
clearing system and elect to be in debt in anticipation of receipt of the sale
proceeds in its account, the back-valuation will extinguish any overdraft
charges incurred over that one-day period. If settlement is not completed on the
intended value date (i.e., the trade fails), receipt of the cash proceeds in the
Cedel Participant's or Euroclear Participant's account would instead be valued
as of the actual settlement date.
Finally, day traders that us Cedel or Euroclear and that purchase Global
Securities from DTC Participants for delivery to Cedel Participants or Euroclear
Participants should note that these trades
A-2
<PAGE>
would automatically fail on the sale side unless affirmative action were taken.
At least three techniques should be readily available to eliminate this
potential problem:
(a) borrowing through Cedel or Euroclear for one day (until the purchase
side of the day trade is reflected in their Cedel or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant
than one day prior to settlement, which would give the Global Notes
sufficient time to be reflected in their Cedel or Euroclear account in order
to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at least
one day prior to the value date for the sale to the Cedel Participant or
Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through Cedel or
Euroclear (or through DTC if the holder has an address outside the U.S.) will be
subject to the 30% U.S. withholding tax that generally applies to payment of
interest (including original issue discount) on registered debt issued by U.S.
Persons, unless (i) each clearing system, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or business
in the chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
EXEMPTION FOR NON-U.S. PERSONS (FORM W-8). Beneficial owners of Global
Securities that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of such change.
EXEMPTION FOR NON-U.S. PERSONS WITH EFFECTIVELY CONNECTED INCOME (FORM
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
EXEMPTION OR REDUCED RATE FOR NON-U.S. PERSONS RESIDENT IN TREATY COUNTRIES
(FORM 1001). Non-U.S. Persons that are beneficial owners of Global Securities
residing in a country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate (depending on the treaty terms) by filing Form
1001 (Ownership, Exemption or Reduced Rate Certificate). If the treaty provides
only for a reduced rate, withholding tax will be imposed at that rate unless the
filer alternatively files Form W-8. Form 1001 may be filed by the beneficial
owners of Global Securities or its agent.
EXEMPTION FOR U.S. PERSONS (FORM W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. FEDERAL INCOME TAX REPORTING PROCEDURE. The beneficial owner of a
Global Security or in the case of a Form 1001 or a Form 4224 filer, his agent,
files by submitting the appropriate form to the person through whom it holds
(the clearing agency, in the case of persons holding directly on the books of
the clearing agency). Form W-8 and Form 1001 are effective for three calendar
years and Form 4224 is effective for one calendar year.
A-3
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The term "U.S. Person" means (i) a citizen or resident of the United States,
(ii) a corporation or partnership organized in or under the laws of the United
States or any political subdivision thereof, (iii) an estate the income of which
is includible in gross income for United States tax purposes, regardless of its
source or (iv) a trust if a court within the United States is able to exercise
primary supervision of the administration of the trust and one or more United
States fiduciaries have the authority to control all substantial decisions of
the trust. This summary does not deal with all aspects of U.S. Federal income
tax withholding that may be relevant to foreign holders of the Global
Securities. Investors are advised to consult their own tax advisers for specific
tax advice concerning their holding and disposing of the Global Securities.
A-4
